Weekly recap
What happened in markets
The Australian sharemarket was largely unchanged in the week, as gains from technology and consumer stocks were offset by the Real Estate (-2.7%) sector. Commodity prices were also relatively muted, outside of iron ore (+3.8%), though interestingly this didn’t really translate to positive performance from its major miners like BHP (+0.3%) and Rio Tinto (+1.3%). Higher yields weighed on Real Estate stocks like Charter Hall Group (-5.2%), Dexus (-4.1%) and Goodman Group (-3.5%). Meanwhile, the big winners last week were technology stocks, supported by positive US sentiment, and included gains from Life360 (+3.6%), WiseTech (+2.6%) and Xero (+2.4%).
US sharemarkets finished higher and reached record highs, however, sector performance was somewhat mixed. The technology heavy NASDAQ (+3.4%) led gains, with names like Hewlett Packard Enterprise (+12.9%), Broadcom (+10.8%), Adobe (+7.2%) and ServiceNow (+7.1%) all ahead. Meanwhile, Amazon’s (+9.2%) Web Services segment held a conference where it showcased its latest product advancements, boosting investor sentiment around artificial intelligence. On the other hand, the Utilities (-3.8%) and Materials (-3.0%) sectors were the worst performers, impacted by commodity price volatility and policy uncertainty. US payrolls data beat expectations, with 227,000 jobs added to the economy, above the 200,000 expected. This positive economic data was supported by upbeat commentary from Visa and Mastercard regarding resilient consumer spending, shown by a 3.4% annual increase in Black Friday sales. Evidently some concern around Trump’s tariffs and immigration policies persisted, however, investors as a whole remained optimistic on the future growth potential of the US.
European sharemarkets also advanced, as the STOXX Europe 600 (+2.0%) achieved its strongest weekly gain in over two months. The UK was the main sore point, driven by softer retail data and increased caution from the Bank of England. Continued weakness in German industrial production and factory orders also dampened sentiment. On the other hand, political uncertainty in France eased, supporting investor confidence, after conciliatory comments from key parties following the ousting of Prime Minister Michel Barnier.
Stock & sector movements
What caught our eye
As we approach the end of the year, we thought it appropriate to review what has happened in global sharemarkets, identifying the main winners and losers for 2024. The chart below shows returns produced by major geographic region sharemarkets so far this year.
Unsurprisingly, the US is set to top the group in 2024, boosted by so-called US exceptionalism and the euphoria around artificial intelligence. Other factors that undoubtedly helped the US includes its economic makeup, being primarily focused on services (compared to physical goods), having limited cyclicality/operating leverage and a reduced exposure to China’s weakening economy, at least when compared to counterparts like Australia and the Eurozone. More recently, the prospect of enhanced productivity and deregulation, brought about by Donald Trump’s Presidential Election, has boosted US investor sentiment.
The Chinese Hang Seng performed well this year, though could be attributed to supportive policymaking and the sharemarket’s relative cheapness following a weak number of years. China’s economy continues to struggle amid a property crisis and challenging demographics. Conditions in Japan improved, supported by a healthy dose of inflation and consumer activity, solving problems the Bank of Japan had wrestled with for years. In Europe, inflation, higher costs and lower global economic activity particularly hurt, given the region’s reliance on industrial production. Softer Chinese demand also hurt Europe disproportionately via automakers and luxury goods providers.
Year-to-date return figures are on track to be some of the strongest seen in history. Quite remarkable when we consider the doom and gloom caused by high inflation and rising interest rates. Many who sought safe haven in cash have certainly missed out.
Delving deeper to the sector and industry level, we can see that the Technology, Financials and Health Care sectors were the strongest performers in 2024. Technology was the main standout, driven higher by US mega caps leveraged toward the potential of big data, cloud computing and artificial intelligence. On the other hand, the Real Estate, Utilities and Materials sectors underperformed, weighed upon by higher interest rates, increased production costs and weaker demand for raw materials.
Finally, from a commodity’s perspective, 2024 was undoubtedly the year for gold. Perhaps unsurprising given it is considered a store of wealth and used by investors as a safe haven. Elevated inflation and ongoing geopolitical tensions pushed the precious metal’s price higher. Most base metals like copper, zinc, nickel and aluminium also saw minor price appreciations. On the other hand, iron ore sank in response to weaker global economic output, particularly as Chinese demand for steel slowed amid its challenged property market. Reduced economic activity also put downward price pressure on oil, though we experienced some volatility in response to geopolitical events in the Middle East.
The week ahead
This week the RBA will make its December interest rate decision. As of Friday, the futures market has a 91% probability attached to the cash rate being left unchanged at 4.35%. A few days later, we will get important employment data, which will shed some light on our economy, as last week retail sales were stronger-than-expected, though GDP was slightly softer than thought.
Internationally, Chinese international trade data will provide insight into the struggling economy's trade situation. Meanwhile, there will be December interest rate decisions from key central banks like the Bank of Canada and the European Central Bank. Both central banks are expected to further cut their cash rate targets.
