2024 in reflection – The top three surprise outcomes

1. The US Election

Prediction: The US election was anticipated to be a tight race, with the potential for split control of the House and Senate. Many predicted prolonged uncertainty and significant market volatility during the transition period.

Outcome: Contrary to expectations, Trump and the Republican Party achieved a decisive victory, securing a clean sweep. This provided Trump with a strong mandate to implement his policy agenda. The equity markets responded positively, with a robust rally that began as results emerged and continued for weeks.

Our perspective: Many investors chose to sit on the sidelines, selling out of markets or delaying investments to “wait for certainty.” Unfortunately, this approach meant missing the rally that followed the election outcome. In fact, research shows that missing just a few of the strongest market days can significantly impact long-term returns due to the power of compounding.

_{Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.} 

At St. James’s Place, one of our core investment philosophies is “Time in the market, not timing the market.” This approach emphasises the importance of staying invested through political changes and market cycles rather than speculating on short-term events. By maintaining a medium- to long-term focus, we align investments with clients’ goals, risk tolerance, and apply optimised asset allocation and diversification while protecting them against different scenarios and tail risks that might arise. 

In the case of US elections, history demonstrates that US Equities have delivered positive returns for long-term investors, regardless of political shifts or party control, over the past 50 years. Market resilience often triumphs over short-term uncertainties, reinforcing the importance of staying the course and maintaining confidence in a long-term investment strategy.

2. US treasuries and the wider bond market 

Prediction: US Treasuries were expected to rally dramatically as soon as rate cuts began, driven by receding inflation and changing monetary policy. 

Outcome: The anticipated rally did not materialise. Treasury yields remained high (relative to recent times) amidst persistent inflation, rising deficits, and moderate expectations regarding the speed and depth of future rate cuts. 

Our perspective: Some investors attempted to capitalise on this prediction as a short-term gamble by purchasing long-dated US treasuries using bank loans as leverage, with the plan to liquidate after the expected sharp treasury rally. Unfortunately, this approach backfired as the rally failed to occur. Meanwhile, borrowing costs on bank loans surpassed treasury yields, compounding the challenge for these investors.

_{Source: Trading Economics, US 10 Year Treasury Bond Note Yield, data accessed 9 December 2024.} 

At St. James’s Place, we advise clients to avoid using leverage for speculative directional bets, as overconfidence in short-term market predictions can expose investors to undue and unexpected risks.

Looking forward to 2025, the absence or delay of this treasury rally suggests that fixed-interest investments remain a relatively attractive asset class – particularly when compared to bank deposits, which are subject to lower rollover rates.

3. China vs. India

Prediction: China was widely deemed to be un-investable, with expectations of no or, at best, a slow potential for market recovery, while India was predicted to surge on the back of favourable demographics and strong GDP growth.

Outcome: China’s equity market experienced a sudden rally in the second half of September, fuelled by new government stimulus commitments, surprising many observers and investors alike. Meanwhile, India faced headwinds due to concerns around the Adani allegations and signs of a growth slowdown.

Our perspective: One of the common pitfalls of investing, known as "recency bias," is the tendency to exit markets that have underperformed recently, while favouring popular themes and regions that have performed well and garnered positive media attention. This behaviour often leads to buying into overvalued markets driven by sentiment and selling out of undervalued ones just when they may hold the greatest potential.

_{Source: FE Analytics, Performance Line Chart in USD between Hang Seng China Enterprises GTR in US and MSCI India GTR in US, period of 29 December 2023 to 29 November 2024.}

At St. James’s Place, we seek to avoid, and where possible exploit, this behavioural investing trap by carefully screening all global markets for attractive opportunities, including in less popular markets that may be trading at low valuations but have reasonable fundamentals. This is, after all, not so different to finding a great bargain in the Christmas sales!

Concluding remarks

2024 has reinforced a crucial lesson: while it’s tempting to react to short-term events or market sentiment, or take a directional bet based on popular “consensus”, the importance of staying focused on long-term, well-considered strategies cannot be overstated. Whether navigating political uncertainty, macroeconomic changes, or market volatility, the key is to remain disciplined, avoid overreaction, and focus on the fundamentals. 

At St. James’s Place, we remain committed to helping clients navigate uncertainty by focusing on the value of strategic planning, diversification, and a long-term approach to wealth management. As we look ahead, we remain focused on helping clients stay on course with their long-term goals, confident that a resilient, well-balanced strategy can weather even the most unpredictable storms.

As we approach the festive season, I wish you a joyful holiday season filled with warmth, love and connection. Take this time to cherish those you love and reflect on what truly matters. Here’s to a happy, healthy, and prosperous new year ahead!

Please note that past performance is not an indicative of future performance. The value of an investment in equities and shares may go up and down. You may get back less than the amount invested. This is different to the capital security typically associated with bank deposits held in cash.