2024 was a year with many tough headlines: two tragic conflicts, the U.S. election, back and forth fears around U.S. inflation and economic growth, and a continued deceleration in China’s economy. Despite all that, international markets had a solid year, especially global equities which were up over 20% led by the U.S. and U.S. high yield credit returning close to 9%. 

Despite many uncertainties, the U.S. economy remained resilient, growing close to 3% due to still strong consumer spending, as well as AI-related business investment. The long-awaited first Fed interest rate cut arrived giving investors the confidence that the economy can remain on the right track. 

For equity and corporate credit markets, these strong economic fundamentals translated into strong corporate fundamentals too. Leading the way were the large technology companies which continued to grow their earnings over 30% this year, led by the investment and monetization of Artificial Intelligence. Plus, earnings in other sectors also started to grow again after a tough 2023, as margin pressure stabilized for the first time in three years.

Importantly, equity market performance started to broaden out beyond the “Magnificent 7” companies which continued to reach all-time highs themselves, but contributed about half of the year’s return versus 63% the year before. This gained even more force after the uncertainty of the U.S. election was lifted and investors gained confidence that the key beneficiaries of the Republican sweep were found outside the large-cap technology space.

The AI-investment theme broadened out this year to include other sectors, such as U.S. utilities companies, which were among the top 5 best performing sectors. Additionally, Taiwan was another key beneficiary, as a major manufacturer of semiconductors. Lastly, a major laggard in the equity space over the past 3 years (China) staged an impressive 30% rebound in 5 trading days as Chinese policy makers announced more forceful fiscal, monetary and regulatory stimulus.

On the more challenging side, U.S. yields moved up during the year, as investors gained confidence that the Fed would not have to aggressively cut rates – and as concerns around the fiscal deficit increased after the U.S. election. As such, bond returns were less exciting than hoped for at 2%. The theme of higher U.S. yields and higher U.S. growth also manifested itself in more U.S. dollar strength by over 5% during the year. This strength was broad-based but particularly large versus higher beta currencies like those in Latin America.

In the year ahead, many uncertainties (new and old) will come up. Investors will focus on details about economic policy in the U.S., especially around fiscal, trade, immigration and regulatory policy. Investors will also assess the shifting geopolitical landscape and how impactful China will be in stimulating its economy. But, as this year showed, having international diversification is key to managing through uncertainty, especially in quality markets like those found in the U.S..