Q4 2024 Market Commentary
The following market commentary provides context for the investment performance of your charitable assets.
From Cambridge Associates, investment advisor
Global equities (-1.0% for the MSCI All Country World Index) declined in fourth quarter 2024 as political developments were at the forefront, highlighted by Donald Trump and the Republican Party’s US election victory in November. Growth stocks, driven by US tech giants, outperformed value equivalents, and large-/mid-caps held up better than small caps. In all of 2024, the small-cap factor underperformed by the widest margin over a full calendar year since 2000.
US equities (2.7% for the MSCI US Index) outpaced developed markets (DM) ex US peers (-7.4% for the MSCI World ex US Index) by the widest margin since 2008, as US dollar strength weighed on the latter. US equities were also supported by continued economic momentum and potential policy tailwinds from the incoming US administration. However, US performance was highly concentrated, driven by Magnificent Seven firms. Excluding these stocks, US equities would have declined 0.5%. Sector performance reflected this dynamic, as growth-oriented consumer discretionary, communication services, and information technology outperformed. Financials also outperformed, boosted by a steeper yield curve and potential deregulation under a second Trump administration.
Major DM ex US equity regions broadly fell. Europe ex UK (-10.6%) and the United Kingdom (-6.8%) fell on mounting economic headwinds and rising uncertainty related to sticky inflation, respectively. Japan (-3.6%) and Canada (-1.8%) declined due to currency weakness (both advanced in local currency terms) as interest rate dynamics became less favorable vis-à-vis the US dollar. Japan was supported by positive economic momentum, while the Bank of Canada cut rates aggressively, signaling a dovish outlook, and Canadian earnings outperformed expectations.
Emerging markets (-8.0% for the MSCI Emerging Markets Index) lagged developed peers (-0.2% for the MSCI World Index) by the widest margin in three years. China (-7.7%) declined on underwhelming economic data, rising trade uncertainty, and disappointing fiscal and monetary policy stimulus updates. Emerging markets Asia (-7.9%) was also hampered by a steep decline in Korea (-19.2%) amid a sudden domestic political crisis.
US fixed income (-3.1% for the Bloomberg US Aggregate Bond Index) sank as bond yields rose amid tempered Federal Reserve rate cut expectations and strong economic data. Ten-year Treasury yields rose 77 basis points (bps) to 4.58%, reaching their highest levels since mid-2024. Three-month T-Bill yields declined 36 bps—reflecting the 50 bps of rate cuts delivered in the fourth quarter—leading the ten-year/three-month yield curve spread to turn positive for the first time in more than two years. Inflation-protected TIPS (-2.9%) performed roughly on par with nominal Treasury bonds (-3.1%) as inflation remained sticky during the quarter.
The US dollar appreciated at its fastest pace in nearly a decade in fourth quarter 2024, supported by several related factors. The election of Donald Trump and the Republicans in November raised the likelihood of major policy priorities, such as tariffs, being enacted. The Fed tempered its rate cut outlook, raising implied interest rate differentials versus other major developed markets. Strong economic data in the United States, particularly relative to other major DM economies, also supported US dollar strength.
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