December general market comments

Dance across the floor – Jimmy “Bo” Horne, 1978

When Jimmy “Bo” Horne wrote this song in 1978, the “floor” still prevailed on the New York Stock Exchange; this was the place where most of the equity transactions were done, with traders and brokers actively buying and selling stocks. A decisively good year for equities traditionally ended with a festive atmosphere on the pit. Electronic trading has gradually started to supplant physical trading in the 80s, and has now almost entirely replaced it. With 2024 marking a very rare back-to-back 20% + yearly return for the S&P500, we can imagine that traders and brokers would have danced across the floor on the 31^st of December, especially that, despite Covid, interest rates, inflation and geopolitics, the index has delivered a whopping 186% price performance since 2014.

Things could even have been better if December 2024 had not been a poor month for equities in general; the US economy is still defying the Cassandras, marking a sharp contrast with most regions. Fed’s ample easing expectations are being rattled down, with higher yields and a much stronger USD as a consequence. To wit, the US 10 year yield rose by 40 bps (+28 bps for the Bund), and the broad dollar index soared 2.6% (underneath the surface, the Euro was down 2.16%, but the Yen tanked 5.07%). WTI caught up 5.47% and ends the year flattish, Gold receded a tad (-0.7%, but still +27.2% for the year) and credit was barely down in an overall pretty positive year (+7.2% for the Itraxx Crossover in 2024).

When it comes to equities, very often does December confirm, and sometimes amplify, the general trends observed during the previous 11 month of any given year. 2024 was no exception, as, even if the market struggled contrarily to the rest of the year, style and sectors stubbornly maintained their trajectory. The nascent reversal triggered by Mr Trump’s win (the “Trump trade”) entirely faded and market polarization came back in force. Growth smashed Value with the Nasdaq up 0.4% versus -2.5% for the S&P500, but more striking is the performance gap between the MSCI World Growth and the MSCI World Value: +0.4% for the former and -5.8% for the latter in December, and +25.1% versus +9% in 2024, an incredible 1610 bps difference! Needless to say that winning Growth stocks, and among them the Magnificent-7 (or possibly the “Heavyw-8” with the addition of Broadcom), are in the US, which explains the vast outperformance from US equities versus all other markets so far.

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