The data is in! Please find below the review of the December, 2024 quarter.
Summary
- Numerous declines were evident across major equity indexes over the quarter with pockets of positive returns across various sectors and countries
- Bonds mostly following suit in negative territory after a quarter where bonds had their second best quarterly return in over two decades.
- Australia’s economy is seeing a tight labour market delaying monetary policy easing, yet cooling wage growth will provide the RBA some comfor
Australian shares
- Australian shares had a slightly negative quarter, with the S&P/ASX200 accumulation index returning -0.80% for Q4 2024
- However, the 12-month number returned a strong +11.44%.
- The Financial sector proved to be the strongest sector for Q4, returning +5.86%.
- The largest negative returns over the quarter were seen in Materials with –11.75%.
Global shares
- The MSCI World Ex-Australia NR Index returned +1.98% over the quarter in local currency terms,
- The 12-month return coming in at +21.22%.
- In Australian dollar terms, quarterly and annual returns were +12.12% and +31.18%, respectively, as the AUD declined against most major currencies during Q4.
- In developed markets;
- Consumer Discretionary led the way with double digit returns +11.01% over the quarter.
- The Materials sector was the largest decline with -10.56%.
- In emerging markets front, it was a tough quarter for all sectors.
- Information Technology being the only sector producing positive returns with +5.98%.
- The Materials sector was the largest decline with -14.29%
Bonds
- With many central banks starting to ease monetary policy globally and yields increasing, fixed interest assets, in general, suffered.
- The Bloomberg AusBond Composite 0+Y TR AUD index was down -0.26% for the quarter.
- Similarly, the Bloomberg Global Aggregate TR Hdg AUD index saw a negative return of -1.22% for the quarter.
Property & infrastructure
- Domestic listed property saw negative returns for the quarter of -6.09%
- Global property also saw negative returns of -7.56%
- Listed global infrastructure was relatively flat with a return of +0.95% for Q4, however the 12-month number remains strong at +17.57%.
Market Outlook
- Although the S&P/ASX 200 TR AUD ended the last quarter for 2024 in slightly negative territory (-0.80%), the market moved higher over the course of the year with its 1-year return of 11.44%.
- Since the presidential election, our equity market has largely mirrored the US, with the S&P 500 and S&P/ASX 200 up roughly 4%.
- Trump has promised corporate tax cuts and deregulation, so the US rally is understandable.
- It’s harder to see how our economy stands to benefit from Trump’s America-first, anti-China agenda.
- Pockets of our market may emerge winners. Companies with US-based supply chains and operations, such as BlueScope, James Hardie, and Pro Medicus, look like the more obvious candidates.
- The bigger question lies with the iron ore miners—BHP, Rio Tinto, and Fortescue—which account for roughly 15% of the S&P/ASX 200 index. Their fortunes are inextricably linked to China’s prospects.
- The Chinese economy, already struggling before the US election, could come under more pressure if another trade war breaks out.
- If China’s growth slows, so too would steel production, driven largely by demand from the domestic construction sector.
- The market seems unfazed, with iron ore holding at roughly USD 105 per metric ton since the election, well above our midcycle assumption of USD 70
Economic Outlook
Looking forward, a new year always brings new predictions. If you own a cellphone or TV, it’s impossible not to engage with market forecasts. Predictions, though ubiquitous, often miss the mark, as they are well-intentioned but usually amount to nothing more than just guess work.
For example;
- The average year-end S&P 500 price target last year among 20 Wall Street strategists was 4,861, with the most optimistic forecast at 5,400.
- Where did the S&P 500 close last year? At 5,881—21% above the average estimate and 10% higher than even the most bullish estimate.
- No one came close.
- This is only one example of why our investing belief system emphasizes process over predictions.
- Good investment outcomes require time—often much longer than a single calendar year.
- Our focus remains on decisions that will influence portfolios in the coming years, not just the next 12 months.
The road ahead will be fraught with risks. Among the most cited are:
- US equity valuations that provide little room for error.
- The potential impact of tariffs on businesses.
- Uncertainty surrounding a new administration in Washington.
These are some of the known risks that investors are already thinking about, yet there are always unanticipated developments as well. We believe a diversified, valuation-driven strategy remains the most effective approach to navigate any uncertainty, whether known or unexpected. By focusing on what can be controlled and maintaining discipline, investors can position themselves to face many shades of challenge the year ahead may bring.
Should you wish to discuss any of the above or gain further understanding into how we construct your portfolio, please contact our office on 1300 014 368 or via email – info@fpbydesign.com.au
