Every December, veteran financial journalist John Authers writes about a fictional investment manager, Hindsight Capital LLC, which as its name suggests, knows exactly what will happen during the course of the coming year, and positions its portfolios accordingly on 1 January.
Authers explains which trades would have been most profitable for Hindsight Capital and why, and it is always worth a read.
Taking a leaf from his book, let’s look at some of the biggest hits and misses of 2024, grouped under three broad themes: the US, China and South Africa. Importantly, let’s see what we can learn from them. Next week, we’ll turn our thoughts fully to the year ahead.
The Trump trades
Let’s start with the most notable trade, and the one for which you had to wait the longest to see the results. The US election only took place in November and was one of the last of a long list of elections taking place globally. The Republican sweep of the White House and Congress means Donald Trump should be able to implement much of his agenda of tax cuts, tariff hikes and immigration restrictions.
It should be noted, however that divisions have already emerged in Trump’s camp. Firstly, a group of hardline fiscal conservatives rebelled against measures to keep the government open and raise the debt ceiling (budget chaos is likely to be an ongoing feature of US politics). Secondly, some nasty mudslinging occurred between what might be called the tech billionaire wing of Team Trump, (notably Elon Musk) who favour skilled immigration and the grassroots wing which is strongly nativist. While both episodes have blown over, they highlight that politics is never straightforward or predictable, since there are always competing interest groups, even within seemingly tight parties or movements.
The US central bank, the Federal Reserve, cut its policy rate from 5.5% to 4.5% in the second half of the year, including a 25 basis points reduction at the December policy meeting. However, this meeting saw its (unofficial) forecast, the so-called dot plot, marking up interest rate and inflation expectations for 2025. This is partly because officials are starting to incorporate expected Trump policies in their estimates. This runs counter to what Chair Powell noted in the November meeting, when he warned against speculating on what those policies and their impact might be. Ultimately, Fed officials are in the same boat as the rest of us. We only know the outlines of what Trump wants to achieve, not the details of what will actually happen and when.
The upshot, however, is that market expectations for rate cuts have been scaled back substantially, while the benchmark 10-year Treasury rose to end the year at 4.5%. It has continued rising in the first days of January, especially after Friday’s strong employment report.
The higher-for-longer rates outlook in the US contrasts with other major economies. The soft Eurozone economy implies further rate cuts by the European Central Bank, weighing on the euro, as does political uncertainty in Germany and France. China’s economy is also in need of lower rates and more stimulus. The trade-weighted US dollar gained 7% in 2024, the best calendar year in a decade, and has continued rising in the first days of 2025.
Chart 1: Trade-weighted US dollar index
Source: LSEG Datastream
Heaven for the Mag Seven
Within the US stock market, it was another barnstormer for the megacap tech companies, including Musk’s Tesla. These are sometimes known as the Magnificent Seven, also including Apple, Microsoft, Amazon, Google parent Alphabet, Facebook owner Meta, and Nvidia. The latter’s unbelievable rise is entirely due to expectations that the artificial intelligence boom will continue, but it is also a factor in the outperformance of the others.
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