Nutmeg Quarterly Market Update Q4 2024

The quarter in review

The final quarter of 2024 was more subdued in financial markets. US and Japanese equities rounded out the year with modest gains, while equities mostly declined elsewhere. In bond markets, many government bond valuations were weighed down as markets trimmed expectations for the number of rate cuts likely to be delivered by central banks in 2025.

Arguably the most significant event of the quarter was the US Presidential Election, the result of which saw Donald Trump voted into the White House for a second time. It remains to be seen exactly which of Trump's policies will be enacted, and to what extent. However, when Trump does take office, it will be to preside over a country boasting economic strength other major economies are struggling to match.   

The UK economy received an initial boost following the summer general election, but the Autumn Budget – which delivered larger tax rises than anticipated – poured cold water on some of the positivity.

European economic momentum weakened significantly over the year. The manufacturing sector was particularly hard hit. This divergence from the US – and to a lesser extent the UK – was compounded by political turmoil in both France and Germany. An exception here is in the Nordic countries which have, by contrast, displayed robust economic growth. 

In Japan, the country might at last be gaining the upper hand in a long battle with price deflation. This, together with a weaker Yen, helped Japanese equities deliver strong returns in Q4. 

In Asia, Chinese economic activity remained weak as the country grappled with falling property prices and weak consumer confidence. Optimism has risen that 2025 may see the significant stimulus required to restart the economy, but the economy continues to face numerous – and material – uncertainties. 

Overall though, investors are likely to look back at 2024 as a positive year for returns, especially in riskier assets like equities.

Brad Holland, Director of Investment Strategy

Equities in Q4

• Global equities declined slightly in Q4, despite gains made by US companies. A Republican clean sweep in the US election prompted investor optimism over the potential for further US economic growth, coupled with tax breaks and deregulation under the new Trump administration.
• UK equities declined. This was partly due to concerns surrounding the effects of the Autumn budget. The pound also weakened, posing cost concerns, especially for firms that import materials. Shares in the large-cap FTSE 100 fell, but domestically-focused, smaller UK businesses, were harder hit.  
• As the Japanese yen weakened, Japanese equities became cheaper for foreign investors. This was one factor among others that helped the main Japanese index, the NIKKEI 225, to make gains. 

"2024 saw US economic performance decouple from the other major regions. Despite concerns over the summer, US economic exceptionalism remained largely intact...
"The S&P 500 was the top performing major equity market with returns of 25.0%, and while the “Magnificent Seven” artificial intelligence (AI) stocks still delivered outsized returns, economic momentum did feed through into a broadening of earnings expectations which is set to continue in 2025."

Maximilian McKechnie, Global Market Strategist, J. P. Morgan Asset Management

Bonds in Q4

• In bond markets, performance was negative for both US and UK government bonds. 
• In the US, Treasury bonds felt the weight of growing concerns over the extent of the Trump administration's plans to increase borrowing, and the potential for future tariff-induced inflation pressures.
• In the UK, an expected rise in borrowing also had a hand in stifling returns, with bond investors wary of the plans announced in the Autumn Budget for more government spending.

"The first half of 2024 saw broad based disinflation and over the summer central banks felt confident they could start normalising policy. However, the last mile proved harder than markets anticipated and, outside of Europe, bond investors pared back their hopes for rate cuts."

Maximilian McKechnie, Global Market Strategist, J. P. Morgan Asset Management

How we are positioning your portfolios

• We believe that the overall resilience of the US economy, in particular relative to other major developed economies, makes it uniquely attractive. We remain overweight US equities. 
• We believe that the UK and Nordic countries are in better economic shape than some other leading European economies, and have shifted portfolio positioning to reflect this. 
• We have reduced portfolio exposure to emerging markets. China in particular faces a slew of economic challenges, as well as the possibility of new and higher tariffs from the new Trump administration. We do not know yet what the implications of this may be for other emerging economies, and have adopted a more cautious position accordingly.

Find out more:

The performance of your portfolio will also be influenced by your chosen risk level, investment style, any tax wrapper, and how long you've been invested. You can see the performance of your individual portfolio in the app, and to learn more about returns, click here.

For regular analysis of markets, the economy, and the outlook for investors, visit Nutmeg Insights or our YouTube channel.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance and forecasts are not a reliable indicator of future performance. We do not provide investment advice in this update. Always do your own research.