In 2024, elections were held in over 40 countries, encompassing more than 4 billion individuals globally. The ramifications of election outcomes were frequently substantial. The move to the right and the ascent of populism were only evident in financial markets in the United States. Trump’s triumph in such context elicited enthusiasm in U.S. equity markets. The S&P 500 increased by approximately 10% following the November election results, although other global regions experienced very modest gains or slight declines throughout the same timeframe. Cryptocurrencies experienced a significant increase following Trump’s electoral victory. For the inaugural occasion, the value of one Bitcoin exceeded $100,000.

Throughout 2024, the enthusiasm for AI persisted across major technology firms, with Nvidia as the most notable exception, with a return of +178% in US dollars. This resulted in the top 10 companies in the MSCI All Countries World Index being exclusively comprised of BigTech firms, all of which are US-based except for Taiwan Semiconductor Manufacturing Company, collectively representing over 20% of the total value of this predominant equity benchmark. Such concentrations have undermined several arguments in favour of passive investing. The dominance of passive investors over the majority of active investors has grown sufficiently to withstand any further losses resulting from these concentrations. Active equity investors had no grievances in 2024 either. Notwithstanding unsatisfactory assessments on the progress of European industry and the Chinese economy specifically, stock markets ascended throughout all areas. The Emerging Markets, comprising 27% Chinese shares, experienced an increase last year following a lacklustre 2023.

Government bond investors cannot express the same sentiment. In contrast to the predictions of most macroeconomists, the 10-year Dutch government bond yield increased from 2.35% to 2.59% last year. Consequently, premium European government bonds saw only a slight growth last year. Consequently, the appreciation of Euro-denominated corporate bonds by up to 4.7% may solely be attributed to a reduction in their credit risk premiums. The additional remuneration for the heightened risk associated with corporate bonds has thus diminished significantly.

It is often asserted that stock markets can typically manage only one or two issues concurrently. In 2024, the evolution of inflation and its influence on short-term interest rates was observed once more. In the Netherlands, inflation remained at +4.1% year-on-year at the end of December, although in Europe, it decreased to over 3.2% during the same period, and in the US, it reached 2.7% until November.

Global central banks reacted by reducing their short-term interest rates, despite the absence of necessity. Short-term interest rates must be reduced to avert a recession; nevertheless, globally, the majority of central banks do not anticipate a recession in their nations before 2025.  Nonetheless, elevated interest rates are detrimental to governments burdened by escalating national debts. Interest expenses are consuming a growing portion of the nation’s annual budgets; yet politicians appear to regard this mostly as a future issue, as it adversely affects their electoral support in the short term.

Additional factors, including escalating global geopolitical tensions, the emergence of numerous authoritarian leaders worldwide, growing protectionism, and natural disasters attributed to climate change, were not reflected in stock prices in 2024; however, they were evident in the 27% increase in gold prices and the over 6% appreciation of the US dollar.

It is a striking paradox that the majority of individuals express concern over communications from their governments and banks urging them to accumulate emergency provisions and increase cash reserves at home, while the stock markets continue to stagnate. The overwhelming majority of macroeconomists maintain an optimistic outlook for 2025. Let us anticipate that their assertions will be validated in practice.