The US S&P 500 index ended December without a bang, falling 2.5% over the month. But December's loss did little to dampen what was another impressive 12 months in the US share market. The back-to-back blockbuster 20% plus returns the S&P has just seen is something we hadn't experienced since 1997-1998. The 'Magnificent Seven' accounted for over half of the share index return for the year, with the explosion in AI and digital technology.

In line with the impressive recent performance, Bank of America’s Global December Fund Manager Survey shows record enthusiasm for US shares from investors around the world. For those who have been around the block a few times, you will be familiar with what can happen when the market is awash with unbridled enthusiasm. As Warren Buffett says, it's wise for investors “to be fearful when others are greedy and to be greedy only when others are fearful.” A fair warning to not get too excited about jumping on what's trending!

Eurozone share markets underperformed their US counterparts both in December and across 2024, largely due to the fact they have limited exposure to the AI sector. The continuing political uncertainty in France and Germany has certainly not helped matters, either. In December the MSCI United Kingdom and MSCI Europe (ex UK) indices both recorded small falls in value, but for the 12 months they managed to record modest single digit returns (9.5% and 8.1% in local currencies respectively).

China's markets continue its grapple with falling property prices and weaker consumer confidence. The policy announcements made three months ago appear to have convinced investors that 2025 will see the Chinese economy roar back into action, with some recovery starting to be seen. Japan surprised many being one of the better performing Asian share markets for the year, rising over 20% in 2024. Taiwan’s stock market returned an even more impressive 28% for 2024, boosted by its semi-conductor companies as the demand for AI related hardware and components soared.

NZ shares have struggled to gain momentum in recent times. Normally you would be excited about a double digit return from the NZ share market over a 12-month period (we've seen growth of 12% for the NZX50 with Imputation Credits), but when global shares have achieved well over 20% for the same period, this leaves you somewhat disappointed. Like the saying goes, comparison is the thief of joy.

December was a volatile month for global bonds, with the global bond index the Simplicity funds follow ending the month in negative territory. US 10-year Treasury yields rose from 4.2% in November to 4.6% at the end of December. Investors are now taking advantage of some of the highest yields seen for some time. Interest rates in the US remain higher than many had hoped for as the Federal Reserve (“the Fed”) has announced a more cautious approach to their rate cutting. The New Zealand central bank has been considerably more aggressive in their approach to cutting interest rates, although this could change going into 2025. NZ bond returns ignored the negative global tone and performed well by comparison. The NZ bond index saw a positive return of 0.5% for December and ended up 5% for the year. These returns may appear on the low side, but when global bonds (hedged back to NZ dollars) grew less than 3.1% for the year, they don’t look that bad.

Going into a fresh new year is always interesting as we have time to reflect on what has happened in the last 12 months, and what may be for the year ahead. News outlets around the world are starting to publish their predictions, and the general theme out of the US at least is cautiously optimistic. However, some are understandably weary of the impact Trump 2.0 will have on the US economy and markets. As always, we don't pretend to know what will happen - it's a case of wait and see, stay calm, carry on and invest for the long-term!

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