2024 in review: elections, rates and a broadening out of markets

Big themes and a surprising performance characterized 2024 from an equities perspective, says Brent MacLellan, vice-president, investment management research and performance analytics with Canada Life Asset Management.

“Some big themes played out in 2024 and there is no shortage of themes and events that could really shape the markets heading into 2025,” he said in a year-end review on the Soundbites podcast.

MacLellan said the themes — including multiple elections around the globe, escalation of geopolitical conflicts and the ongoing battle against inflation — ultimately failed to disrupt returns.

“Entering 2024, everyone was really on a euphoric high, given the robust 20%-plus returns experienced across global developed markets in 2023. I don’t think another 20%-plus return was really in the cards for 2024. However, what we’ve seen so far this year and what really transpired was that analysts’ return expectations for the U.S. market were met in full in the first quarter,” he said.

“All in all, it was a pretty resilient and robust year for investors.”

The overwhelming obsession among investors throughout 2024, MacLellan said, was how the Federal Reserve Board would react to market trends and, conversely, how markets would react to the Fed’s rate cuts.

“The market became really data dependent, following the Fed’s lead. Investors became super-sensitive to every inflation print and every economic report,” he said, adding that conflicting data sparked heightened volatility throughout the year.

Another significant theme was the U.S. election, which resulted in a “Trump rally” when the votes were finally counted.

“This further propelled U.S. markets and markets in general across the globe, particularly the U.S. small caps, which hit new highs on this news,” MacLellan said. “They were really helped by not only the U.S. election, but prospects for stronger earnings growth and much more compelling valuations versus large caps.”

Finally, 2024 marked the end of the exclusive domination of the S&P 500 by the so-called Magnificent Seven stocks.

“If you look at the S&P 500 equal-weight index this year, which doesn’t take into consideration the size of the company, it outperformed the S&P cap-weighted 500 index in Q3 — the first time, going back seven quarters, since 2022,” MacLellan said. “We’re seeing a broadening of the market environment. … I think that’s good news for continuation of a rally going forward in 2024.”

In terms of sectors, information technology and communication services were the winners in 2024.

“That really wasn’t a surprise, I think, to most in 2024, as this has been the case, really, over the past two years,” he said. “Those two sectors led the way, given that’s where the Mag Seven stocks are situated.”

Other sectors that “came on strong” in 2024 were utilities, boosted by falling interest rates and the artificial intelligence theme, and financials.

“Names like [Omaha, Neb.-based] Berkshire Hathaway, and [New York, N.Y.-based JPMorgan Chase & Co.] really drove the sector higher,” MacLellan said. “With rates coming down and the yield curve becoming less inverted, that’s generally good news for banks overall.”

On the other side of the ledger, health care was a laggard, while the energy sector saw a “pretty volatile” year.

“We’ve seen some bright spots in the energy sector and performance throughout the year. But again, we’ve seen a lot of volatility in the price of oil, and that’s the energy sector overall,” MacLellan said.

He concluded that the current market environment calls for active management.

“The market and the outcomes thus far in 2024 could have been a lot worse, given the volatility and all the headwinds,” he said. “The main lesson I take away is active management in the markets really matters, especially in times like these.”

MacLellan said it is important for investors to rely on active manager who can “find pockets of opportunities at relatively good value.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.