As 2024 draws to a close, investors are tallying their gains in what has been another solid year for global equities. While the US stock market hogged the limelight with the tech-fueled rallies of the Nasdaq and S&P 500, the UK’s benchmark FTSE 100 index quietly posted a respectable 5% increase.
The Footsie’s advance marks its best annual performance since 2021 and extends its winning streak to four years. However, the index is ending the year on a sluggish note, down 2% in December and well off the record high of 8,474 reached in May amid optimism about falling inflation and potential interest rate cuts.
Dividend Income Boosts Total Returns
While a 5% price gain may seem modest compared to the double-digit rises seen on Wall Street, UK shareholders also benefited from a steady stream of dividend income. As AJ Bell investment director Russ Mould notes, “Total returns from the UK stock market in 2024 handily beat cash, bonds and inflation.”
Mould suggests value and income investors should give the UK market a closer look in 2025, given the more attractive valuations and healthy projections for earnings and dividend growth compared to the lofty US indices.
Europe Lags as Germany Shines
Across the English Channel, European equities had a mixed 2024. France’s CAC 40 index lost ground amid political turmoil, shedding 3%. But Germany’s DAX powered to an impressive 19% gain, led by software giant SAP’s 60% surge.
The region’s underperformance relative to the US and UK highlights the challenges facing the European economy, including stubbornly high inflation, rising interest rates, and geopolitical uncertainty related to the war in Ukraine.
Tech Titans Propel Wall Street to New Peaks
Meanwhile, the seemingly unstoppable US tech sector once again dominated the global financial headlines. The Nasdaq Composite soared nearly 30%, while the broader S&P 500 jumped over 23% to notch a series of record highs.
“After the turbulence of 2023, we’ve seen a marked shift towards growth, driven by stabilizing inflation and a more positive outlook for interest rates,” said Tom Stevenson, investment director at Fidelity International.
However, December proved to be a speed bump for equities as hawkish signals from central banks and a spike in bond yields sparked a year-end selloff. The lack of a “Santa Rally” may be a warning sign that markets are underestimating inflation risks heading into 2025.
Looking Ahead: Value Rotation or Tech Dominance?
As investors turn the page to a new year, the key question is whether the growth trade still has legs or if a long-awaited rotation to value stocks will finally take hold. Bulls argue the digital transformation and AI boom still have years to run, while bears warn of bubble valuations and economic headwinds.
For the FTSE 100, the path to outperformance may lie in its heavy weighting of energy, mining and financial stocks that could thrive in an inflationary, rising-rate environment. The index’s defensive characteristics and high yields may also attract nervous investors if volatility picks up.
One thing seems certain: after years of US exceptionalism, a changing macroeconomic landscape and a potential recession could shift the balance in favor of more cheaply valued regions like the UK and emerging markets. But betting against the tech titans has been a losing trade for a long time.
- Wall Street strategists predict mid-single-digit gains for US stocks in 2025
- Rising rates and valuations seen as headwinds for tech sector
- Inflation and geopolitical risks remain key wildcards
As 2024 showed, fortunes can change quickly in the stock market. Standing still is often the riskiest move. Nimble investors who stay attuned to shifting narratives and rotate into unloved regions at the right time may reap the rewards, while those who cling to yesterday’s winners could be left behind.
