Snapshot
The 2024 financial year showcased a blend of economic resilience, geopolitical tensions, shifts in central bank policies, and a significant rise in equity markets. Among global indices, the S&P 500 in the US stood out with a ~25% increase, while the Shanghai Stock Exchange Composite lagged, ending the year ~7% lower.
The year began on a strong note in July but faced turbulence during August, September, and October. This period saw markets decline due to several factors. The US Federal Reserve's (Fed) hawkish stance at the Jackson Hole symposium and economic troubles in China set a negative tone in August. September and October witnessed rising oil prices, driven by production cuts from Saudi Arabia and Russia, alongside the onset of the conflict in Israel.
However, a market rally commenced in November and continued through March, buoyed by growing investor confidence that the Fed was nearing the end of its interest rate hikes. This was confirmed in December when the Fed hinted at no further rate hikes and potential cuts in 2024. This phase was marked by declining inflation, a halt in rate hikes, and expectations of a soft economic landing in the US.
A significant highlight during this period was the Nikkei 225 in Japan surpassing its 1989 record high in February. This was followed by the Bank of Japan's (BOJ) major policy shift in March, ending eight years of negative interest rates and most of its unconventional monetary policy measures. The BOJ's move to raise rates from -0.10% to a range of 0.00-0.10% marked an end to the global era of negative interest rates that began in the 2010s.
In April, markets paused as higher-than-expected inflation readings in the US and ongoing geopolitical conflicts in Israel dampened investor enthusiasm. Nevertheless, the volatility was short-lived.
By May, markets had recovered their losses, spurred by dovish comments from Fed Chair Jerome Powell's indication that interest rates would likely remain steady at 5.25-5.50%, rather than increase further reinforced positivity. Additionally, the US experienced two consecutive months of softer-than-expected inflation in April and May for the first time in four months.
At the time of writing, interest rate markets anticipate the first 0.25% rate cut by the Fed on 18 September, ahead of what is sure to be an entertaining US Presidential Election on 5 November.
Despite the challenges and uncertainties, we remain cautiously optimistic for the year ahead, considering the progress achieved. While inflation remains above central bank targets, it has fallen considerably and continues to trend lower. Thus, we believe the 2025 financial year presents a favourable market environment as the path towards lower interest rates comes into view.
Key Stocks
Wade is the head of the Investment Services division at Cutcher & Neale and has over 10 years of industry experience in accounting and investment advisory roles.
Wade guides his division on the belief that investment portfolios should be built on transparency and flexibility. His expertise focuses on direct portfolio exposure to both Australian and Global Investment markets.
