An amazing performance of global equities, despite imponderables
25 November 2024, 14:38
Considering the demanding imponderables that global investors have had to circumvent throughout a year of unprecedented political volatility and economic instability, it staggers me that most global equity markets have performed with considerable aplomb and prowess.
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Investors and analysts have had to weave their way through the following maze of challenges – 70 global General Elections, with the US Presidential Election this month of the greatest importance; fierce wars in Ukraine and in Gaza, Lebanon, Iran and Israel. Inflation issues, culminating in interest rates falling slower in the Western world than many would have hoped for – FED rate July 2024 from 5.5% to 4.75%, UK Bank Rate July 2024 from 5.25% to 4.75%, ECB from June 2024 from 4.25% to 3.40%.
Since the Covid Pandemic we have seen global debt rise to eyewatering and unprecedented levels since 2019 – US from $22 trillion to £34 trillion; UK from £1.9 trillion to £2.9 trillion and EU €14.1 trillion to €15.3 trillion. Then add the cost of climate change and global migration to the list of issues and they make up quite an intoxicating financial cocktail.
However, it might be folly to think the expected ‘Santa rally’, which has come earlier than expected, has yet run its race. The ‘Trump Factor’ appears powerful, despite the level of uncertainty and it is very likely that equity values may just crack on. President-Elect Trump seems determined not to delay with cutting taxes (which could be tapered due to a wary bond market), slashing expenditure, implementing tariffs on China, the EU and UK, stripping regulations to the bone and stopping the war in Ukraine as soon as possible – ambitious yes! However, progress cannot be ruled out.
Set out below are the main global indices’ performance since the beginning of 2024 – FTSE +7.00%, FTSE 250 +5.38%, DAX +15.23%, CAC40 -3.66%, DJIA +17.45%, S&P500 +25.86%, NASDAQ +28.70%, NIKKEI +15.01%, HANG SENG +14.54%, SHANGHAI +10.29%. Apart from disappointing performances by the UK and France, these gains are impressive.
US stocks have hit new heights this year with the DOW, S&P 500 and the NASDAQ Composite all ploughing through record levels. The advent of AI has been the driving force in the tech sector, with Nividia acting as the ‘lightning conductor’ – up 194% since the beginning of the year. US banks have also played a big role in the US recovery progress - JP MORGAN CHASE +44.44%, WELLS FARGO +53.98%, CITIBANK +31.67%, BANK OF AMERICA +38.64%, GOLDMAN SACHS +55.24%, MORGAN STANLEY +43.44% - and there have been some great performances in retail, especially Walmart (+70% YTD), Kroger (+28% YTD), Abercrombie & Fitch (+57% YTD) and Nordstrom (+28% YTD). Conversely Walgreen Boots has had a ‘shocker’ this year, losing 67% year to date.
Unsurprisingly the US defence sector, excluding Boeing (-40% YTD) has put in a stellar performance - RTX Corp +41.72%, LOCKHEED MARTIN +18.88%, NORTHROP GRUMMAN +5.70% and GENERAL DYNAMICS +8.98%. Suffice to say that European defence operations have also been enormously successful - BAE SYSTEMS +19.27%, ROLLS ROYCE +82.96%, QINETIQ +38.68, THALES +11.02%, LEONARDO +67.39%, and RHEINMETAL +106.89%.
Energy, part from Exxon Mobil (+18%), has remained in the doldrums. BP has been a serious laggard (-16%) and Saudi Arabia’s ARAMCO is down 15% due to a rather depressed oil price around the lower $70 a barrel. ELI LILLY (+26.31% YTD), ABBVIE (+10.72% YTD) have delivered in spades in what has been rather a subdued drug sector.
The FTSE 100 and 250 are suffering for a variety of reasons. Firstly, the FTSE is an international index, with about 60% of the constituent stocks posting Dollar related earnings. Secondly, the mining sector has been very depressed as have drugs and telecoms (Vodafone). Valuations of stocks in the UK in comparison to their US peers are possibly valued 30% lower. The new Labour administration probably have not done themselves any favours and seemed incapable to date of delivering a Budget of growth attracting criticism across the spectrum including the CBI. All are concerned that a £40 billion tax bill, much of it associated with Employers’ increase NI – circa £25 billion - will blunt profits, create unemployment and discourage expansion. Many observers think that maybe Chancellor Reeves might like to take a leaf out of Scott Bessent’s book – the new US Treasury Secretary. Trump and Bessent might just see the US economy powering on. It would be great if the UK could be on board with incentives to encourage growth.
UK banks have performed with zest and verve – NatWest (+77% YTD and Barclays (+65% YTD). The building sector has been a huge disappointment , despite the government’s plans to build 1.5 million in the next five years – year to date: PERSIMMON -7.87%, TAYLOR WIMPEY -10.13%, BARRATT REDROW -25.00%, VISTRY GROUP -28.86%, BERKELEY GROUP -11.23%.
Hats off the Marks & Spencer (+38% YTD), NEXT (+21% YTD) and TESCO +20% YTD). Archie Norman, Stuart Machin, Lord Simon Wolfson and Ken Murphy are outstanding leaders. Sainsbury’s share price has suffered with Qatar selling £300 million of shares. Ocado is just not delivering profits, though its product is decent (-58% YTD). A complimentary word on IAG (+56% YTD) though travellers could do without IAG’S technical blips, which brings flights to grinding halt.
Europe does not look a great scene with growth almost non-existent. Germany is so reliant on industry and cars. These main companies are not in great order - SIEMENS +5.77%, THYSSENKRUPP -39.98%, BMW -33.39%, MERCEDES -17.48%, VW -27.53% BASF -13.23%.
As for next year, contacts tell me its all about the US and Japan and many investors are being drawn into ETFs in India and China. The same can be said for Bitcoin. It will not have escaped the notice of investors that Blackrock and Fidelity have ETF very significant funds in Bitcoin, which many prefer rather than their own intrepid sorties into the cryptocurrency jungle. Good luck and good hunting for 2025!
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