2024 has undeniably been another momentous year for US equities, with returns dominated by the strong performance of technology stocks.
We look back on the year from both an investment perspective and through the lens of the issues and developments that have both impacted and will impact our clients in the future.
US equities have outperformed most global markets in 2024, primarily driven by technology giants.
NVIDIA, for instance, made a remarkable contribution of 3.8% to the MSCI All Country World Index benchmark returns, representing about 16% of the total benchmark returns.1 When considering other technology leaders like Meta, these companies collectively accounted for approximately 20%2 of the benchmark returns, underscoring the significant influence of a few key players in the market.
However, while tech has dominated for the majority of the year, there have also been some periods of broadening out. In July we saw small caps performing really well with the Russell 2000 index delivering extraordinary performance. However, these gains quickly reversed in the first week of August.
Following the US election there was also a mild broadening but again in the last week or so we have seen that concentration come back into some of the really large cap companies. Thus, the broader market trends were fleeting and ultimately, market returns reconcentrated in the largest companies by market capitalisation.
While it has been a remarkable year for US equities, especially considering it followed a very strong 2023, such concentration in very few stocks is not typical and emphasises the unusual nature of the past two years.
The question of whether this concentration will continue is always an interesting one but, in our opinion, diversification and long-term strategic planning remain essential, even in years defined by remarkable but concentrated market gains.
This concentration of performance in the US and particularly within a few companies has meant that maintaining a diversified portfolio has proved difficult for active managers.
Traditionally, the goal is to spread risk globally, yet 2024’s lesson appears to contradict this, at least in the short term, with a need to lean heavily towards investments in the US technology sector to keep up with market returns.
The recent US election had a substantial impact on market sentiment, with Trump's victory leading to short-term optimism on expectations of pro-market policies. However, there are concerns about potential changes in tariffs and taxation, which need careful consideration.
Concerns about tariffs are potentially overblown. While research does indicate that tariffs are negative for all parties involved on an economic growth basis, we have not necessarily seen that over recent years. It should be remembered that we have been in a tariff rich environment since 2016 and the Biden administration actually kept the tariffs implemented in Trump’s previous term. The impact does not seem to have followed the research as economic growth has remained strong despite these headwinds to trade.
In the UK, the Autumn Budget, the first of the new Labour government was eagerly awaited even if the messaging signalled that taxes were set to rise, especially on those with the ‘broadest shoulders’. In the end, the headline tax rises were not as great as many had feared, although as always, the devil is in the detail and there are always winners and losers.
Whilst well flagged, the Budget confirmed the end of the non-domicile regime that has existed for over 200 years. Whilst there are some transitional arrangements and the new rules that allow the temprary sheltering of Foreign income and Gains for those arriving into the UK, the impact especially on inheritance tax for those clients who previously benefitted from the non-domicile regime is significant.
As a consequence clients are re-evaluating their financial and estate planning strategies in light of these new rules.
As we transition into 2025, expectations are set for market returns to broaden beyond the technology sector.
Identifying global winners, particularly in niche areas outside the US, will be crucial for achieving sustainable growth.
Active portfolio managers must continue their discernment in selecting companies with proprietary datasets or those meeting specific industry needs, regardless of their geographic location.
For clients going into 2025 proactive planning and early advice remain critical, especially those considering significant relocations or estate planning adjustments.
The importance of considering all aspects of financial planning cannot be overstated as we navigate the evolving political and economic landscape.
[1] Source: Bloomberg, December 2024
[2] Source: Bloomberg, December 2024
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