2024 was a busy year. Global economic growth diverged amidst elevated uncertainty; nearly half of the world's population went to the polls, igniting debates around policy; inflation eased across major economies, with policymakers seemingly successful in engineering a "soft landing"; and risk assets performed well, though the dispersion of returns across asset classes widened.

What was behind these market moves? To answer that, it is important to unpack some of the themes that defined last year:

• U.S. growth exceptionalism continued: Coming into 2024, consensus estimates projected U.S. growth to normalize. Instead, the U.S. economy surprised to the upside, driven by resilient consumer spending and AI-driven private investment. In fact, current estimates suggest that the U.S. economy expanded by 2.8% in 2024, more than double initial estimates and driving a wedge between the U.S. and other developed economies. In the emerging world, the Indian economy topped the league tables, while China managed to achieve its 5% growth target thanks to year-end stimulus.
• Rate cuts materialized, but bonds lagged: 2024 was expected to be the “year of bonds,” as markets anticipated rate cuts from major developed markets. While cuts did materialize, they did so unevenly: stubborn inflation (with policy-related risks anticipated in 2025) and warmer growth pushed U.S. long rates higher while hawkishly shifting rate expectations for this year. However, while duration disappointed in 2024, credit markets fared better despite tight spreads, supported by low default rates and attractive base rates.  
• Gold and the dollar soared: Safe-haven assets flourished in 2024. Gold climbed 27% amid record central bank purchases while the U.S. dollar appreciated around 7% thanks to macro conditions — like strong U.S. growth and high U.S. yields — and geopolitical concerns. As a result, the historical negative correlation between gold and the dollar was challenged. 
• Risk assets had another banner year: Despite muted expectations in early 2024, U.S. equities defied projections, posting a second consecutive year of 20%+ return, a feat achieved only four times since the 1930s. Once again, these returns were driven by large cap names, fueled by strong earnings, optimism around AI and potential deregulation under the new administration. Outside the U.S., European equities struggled alongside a weakening economy, while Japanese and emerging markets fared better, including particularly good performance from Taiwan and India. Meanwhile, Bitcoin more than doubled in value, following regulatory approval of spot ETFs and optimism around potential policy changes.

All told, 2024 was a year that defied expectations - sometimes for the better, sometimes for the worse - underscoring the importance of maintaining a well-diversified portfolio. Moreover, as slide 64 of the Guide to the Markets shows, market returns can cause portfolios to drift, exposing them to concentration risks. As a result, looking in 2025, investors would do well to not only embrace asset allocation but also maintain it.

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