
Key points
Equity Markets Close Off a Great Year for Investors:Â Despite a subdued end to the year and a Santa rally not materialising as hoped, US markets posted impressive gains in 2024. Australian equities struggled in Q4, primarily due to a decline in materials, while financials outperformed. US equity returns were subdued overall, with technology stocks driving performance. European and UK stocks faced risk-off sentiment, resulting in slight declines in Q4 but positive returns for the year overall.
U.S. Rate Cut Expectations: In December, the Federal Reserve gave us a 25 basis point cut; however, markets were taken aback by Jerome Powell’s comment suggesting there will only be two 25 basis point rate cuts in 2025, compared to the four previously mentioned. This weighed on both equities and fixed income, however it also provided a boost to the US Dollar.
Bond Prices Fell: Global fixed income markets declined in the final quarter with a sharp rise in yields, which was influenced by Trump's election victory creating inflation concerns, Jerome Powell suggesting there will be fewer rate cuts than previously expected in 2025, and strong economic data from the US combined with persistent inflation. Australian fixed income also performed poorly but outperformed the global index, facing its own challenges with the RBA's cautious approach and unpredictable moves.
US Dollar Rally: The US dollar strengthened significantly in the last quarter of 2024, driven by Donald Trump's election victory, expectations of less aggressive rate cuts by Jerome Powell, and slower growth in the UK, EU, and China making the US relatively more attractive. Conversely, the Australian dollar weakened due to US dollar strength and concerns over the Chinese economy affecting the domestic market.
Sector Performance: AI/Tech outperformed once again. In 2024, the Magnificent Seven accounted for over 50% of the total S&P 500 return. In Australia, Financials continued to outperform. Materials in both Australia and the US performed very poorly as China’s economy and expected future demand for metals remains uncertain.
Markets in Review
Despite a muted end to the calendar year, the fourth quarter wrapped up a fantastic year for investors. Persistent inflation, uncertainty from a US presidential election and several geo-political conflicts across the globe were unable to deter markets over 2024, as the S&P 500 posted a second consecutive yearly return of over 20% for the first time since 1998. The S&P 500 returned 2.6% in the final quarter, while tech continued its charge with the tech-heavy NASDAQ returning a higher 7.82%. Poor sentiment surrounding China combined with a cautious RBA meant Australian equities finished slightly down in the fourth quarter albeit remaining comfortably positive for the year.

US Government bond yields rose sharply in the final quarter as a combination of persistent inflation (currently at 2.7% in the US) and strong economic data continues to worry the US Federal Reserve (Fed). A looming Donald Trump presidency also weighed on sentiment with concerns as to whether Trump’s policies could further exacerbate the inflation problem. In December the Fed cut rates by 25bps, however it was Jerome Powell who spooked markets as he pointed towards just two rate cuts in 2025, down from four which was previously projected by the Fed in September 2024. The selloff in bonds drove the 10-year Treasury Bond yield to 4.6%, resulting in a poor end to the year for fixed income investors.
Equities

Australian equities struggled over Q4. Miners felt the brunt of the poor performance with Materials declining 12% as investors begin to lose patience with promises of Chinese stimulus. China typically imports 75% of iron ore globally and therefore a stagnant Chinese economy has weighed on future demand expectations, resulting in the price of the metal declining by almost 30% in 2024. Iron ore miners such as Fortescue and BHP both posted double-digit negative returns for the quarter and subsequently detracted from Australian equity performance. In contrast, financials continued to outperform in Q4 with the likes of Commonwealth Bank of Australia rising almost 15%, closing out an impressive 2024 gain of 37.1%.
Although US equity returns were subdued over the quarter and the Santa rally did not present itself with as much exuberance as hoped, it was once again the AI/Tech theme which finished the year strong. The broadening out of performance in the second half of the year was unable to offset the dominance of technology in the first half of the year. Returns for the year subsequently finished narrow with the ‘Magnificent Seven’ stocks accounting for more than 50% of the 23.3% return in the S&P 500. The end of the calendar year was not so pleasant to all sectors, and just like the Australian market, the US saw materials fall amid concerns surrounding the world’s largest industrial economy (China).
Elsewhere, European stocks fell around 3% in the final quarter of the year, the worst Q4 performance in more than two years. Â This was caused by a general risk off sentiment going into 2025 amid a bout of uncertainty coming in the form of rate cuts, conflicts and politics. The UK experienced similar performance over the quarter however, overall, both the UK and Europe posted comfortably positive returns for the year.
Foreign Exchange Markets
During the quarter we saw a significant rise in the US dollar for several different reasons. Firstly, Donald Trump winning the US election is likely to mean there will be an inflow of investment due to Trump’s business-oriented approach and focus on tax cuts and de-regulation. Additionally, we had Jerome Powell announce that there will be just two (25bp) rate cuts in 2025, 50% less than the four that he previously told us to expect. This notion of higher for longer interest rates makes the currency more attractive, further strengthening the dollar. Finally, there is also slowing growth in the UK, EU and China making the US a more attractive option for investors. As a result, the US Dollar appreciated 7.20% over the period.

The Australian Dollar underperformed the US Dollar considerably in the last quarter of 2024. No doubt the fall is driven by the strength of the US Dollar; however, there is the additional concern of the Chinese economy. Australia’s largest trading partner is China and therefore expectations of slow growth going forward dampens Australian Dollar demand forecasts and subsequently weakens the Australian dollar.
Fixed Income Markets

Global fixed income markets fell over the final quarter with a sharp rise in yields, largely driven by events occurring in the US. As previously mentioned, this was a result of several factors including concerns over Donald Trump implementing inflationary policies such as tariffs, Jerome Powell suggesting there will be fewer rate cuts than previously expected, and lastly strong economic data whilst inflation remains persistent and higher than anticipated.
Australian fixed income also performed poorly in the fourth quarter however managed to outperform the global index. Whilst Australian bond yields typically follow in a similar fashion to the US, Australian fixed income also faces its own challenges with a very cautious Central Bank (RBA). The RBA is an inflation led central bank and is typically uninfluenced by decisions made by other central banks, making their next move difficult to predict. This was evident following COVID when the RBA was late to raise rates, and to a lower level than other developed countries. Currently, inflation is not where they would like and therefore the RBA is unlikely to take unnecessary risks.
Outlook
As we look ahead to 2025, we see reasons to be optimistic, yet also reason for caution. Stretched valuations, persistent inflation, geopolitical flare-ups, and the unpredictability of Donald Trump’s presidency all create the possibility of market corrections and possible drawdowns over the year ahead; however, that is not to say these drawdowns will occur. If recent years have taught us anything, it is that financial markets can thrive even under less-than-ideal conditions. Often, the positive sentiment from investors can overshadow any negative headlines.
Rates / Fixed Income:
A consistent theme in markets over the last few years has been interest rates, more specifically expectations of changes to interest rates. Like many, we anticipate that interest rates are on the way down and any potential increase in interest rates is unlikely. The US Federal Reserve are acutely aware of the impact a rise in rates would have on the markets and therefore it would only be used as a last resort. Jerome Powell has suggested that there will be two rate cuts in 2025, and the market is currently pricing in just one cut for the year. We also believe there will be very few rate cuts over the year; however, predicting the exact number at this moment is challenging as it is highly dependent on various factors, including economic indicators, inflation data, and the policies enacted by Donald Trump. For this reason, we expect yields to remain high for the first part of the year, giving the Fed and investors time to understand where the economy is heading following the initial cuts, as well as seeing how Trump’s policies will feed into the inflation story. We favour long duration assets specifically in government and semi government bonds to benefit from any fall in yields whilst maintaining a level of protection through inflation protection strategies should we see any unexpected volatility. We must also state that if inflation is on the rise central banks will raise interest rates, this is not in the realm of the impossible.Â
As we know the Reserve Bank of Australia (RBA) appears more cautious when it comes to changes in interest rates in comparison to its developed market peers. The RBA was late hiking rates and so it is no surprise that they are also late to cut rates. We think that rate cuts are likely to come around halfway through the year, perhaps slightly earlier. However, as always, this is depending on how the next December inflation numbers look as well as any developments within the economy, which is always subject to change.
Equities:
The unpredictability surrounding Trump's presidency presents significant challenges for the markets. In 2025 we are likely to see a battle in the equity market between a potential rise in inflation, and an implementation of pro-business and growth-oriented policies (such as de-regulation and tax cuts) which could instead drive markets upward.
It is likely that the AI/Tech theme will continue into the coming year as both the excitement surrounding this area and technological developments itself continue to grow. Whilst much of the rally is down to exuberance, there is no ignoring the fact that earnings continue to be strong, often in-line or above analysts’ expectations. However, valuations are extremely stretched and therefore a drawdown or correction is possible. For this reason, we maintain our stance of having a diversified equity allocation. Doing so will both lower the overall risk of the equity allocation whilst also potentially increasing returns in the likely event of a broadening out of performance going into the year, should equities continue to rise.
Here in Australia, equities are not as expensive (relative to historical averages) compared to the likes of the US however, there are still pockets of high valuations. Notably financials, such as CBA, which has had an impressive run over the last year. More than 33% of the ASX 200 is exposed to the financial sector, therefore it is important to be wary of a potential correction. For us, this points towards active management in the Australian market to mitigate against any drawdowns in a select number of holdings. Materials similarly make up a large proportion of the Australian market. Performance in this area is likely to be dependent on China’s ability to provide stimulus and boost their economy.
Summary:
The outlook for 2025 remains cautiously optimistic, despite challenges such as inflation, geopolitical tensions, and the unpredictability of Trump's presidency. Interest rates are expected to decline gradually, with the US Federal Reserve likely to implement two rate cuts while the RBA in Australia remains cautious. It is important to remember that we are long term investors, therefore given that we are confident that rates are on the way down, the exact timing of these cuts is unlikely to affect long term returns. The AI/Tech sector is expected to continue its strong performance, although high valuations suggest a potential for corrections, advocating for diversified equity allocations. The Australian equity market, particularly the financial and materials sectors should be navigated through active management to avoid expensive pockets.
General Advice Warning
This update is issued by Ventura Investment Management Limited (AFSL 253045), which is a related body corporate of Centrepoint Alliance Limited.
The information provided is general advice only and does not take into account your financial circumstances, needs or objectives. Where you are considering the acquisition, or possible acquisition, of a particular financial product, you should obtain a Product Disclosure Statement for the relevant product before you make any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. It is imperative that you seek advice from a registered professional financial adviser before making any investment decisions.
For more information, refer to the Financial Services Guide (FSG)Â for Ventura Investment Management Limited (available at).
Disclaimer
While Centrepoint Alliance Limited and its related bodies corporate try to ensure that the content of this update is accurate, adequate, and complete, it does not represent or warrant its accuracy, adequacy or completeness. Centrepoint Alliance Limited is not responsible for any loss suffered as a result of or in relation of the use of this update. To the extent permitted by law, Centrepoint Alliance Limited excludes any liability, including negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this update.