Global Market Overview
The fourth quarter of 2024 was marked by significant volatility across global markets, as reflected by the performance of the MSCI All Country World Index. We navigated through a landscape shaped by a major shift to the right in US politics, higher inflation, and a stronger US dollar. The Federal Reserve signaled fewer rate cuts on the horizon which led to a subdued finale to what otherwise was a very strong year in the markets.
US Stocks - Performance and Trends
The US equity market demonstrated resilience, securing a 2.63% return for the quarter. Large growth stocks were particularly strong, achieving a 7.07% gain, while large value stocks faced challenges, declining by -1.98%. Small caps, especially small value stocks, did not fare as well, with a -1.06% return, highlighting the disparity between growth and value investments within the domestic market.
International Developed Markets - A Challenging Quarter
International developed markets outside the US had a difficult quarter, registering a -7.43% return in USD terms. Value outperformed growth within this segment, with -6.55% for value compared to -8.31% for growth, yet both categories encountered substantial headwinds.
Emerging Markets - Navigating Through Turbulence
Emerging markets saw a downturn, with a -8.01% return in USD. Here, growth stocks managed a slightly better performance than value, at -6.91% versus -9.21%, indicating a preference for growth investments even amidst broader market declines.
Real Estate - REITs in a Rising Rate Environment
US REITs managed to outperform their global counterparts, with a -5.93% return compared to -15.37% for non-US REITs. This quarter's performance reflects the broader real estate market's struggle with the implications of higher interest rates.
Commodities - Sector Divergence
The commodities market presented a mixed performance, with the Bloomberg Commodity Total Return Index down by -0.45%. Coffee led with an 18.51% increase, followed by WTI Crude Oil at 7.10%. Conversely, Sugar and Nickel were among the quarter's laggards, with declines of -14.29% and -13.81%, respectively.
Catastrophe Bonds
The Swiss Re Cat Bond Index, which tracks catastrophe bonds (an alternative investment strategy), returned 3.73%. Loss estimates from the 5 hurricanes landfalling in the US last year were on the lower end of a $20-$40B range, which was considered good news for this category.
Conclusion
The fourth quarter of 2024 underscored the importance of a diversified investment strategy. As we observed, while the US market showed strength, international markets and fixed income faced significant challenges. Moving into 2025, maintaining a disciplined, evidenced based approach will be key to navigating the financial markets effectively. If you don’t have a plan for that, get in touch.