Commentary
SEI Forward
Fourth-quarter 2024. Global investors weathered quite a year.
SEI Forward fourth quarter 2024
Year in review
Global investors weathered quite a year in 2024, including global central bank pivots to easy monetary policy, voter pivots to opposition parties, rapidly rising national debt levels, and escalating geopolitical strife. Markets responded with solid returns for risk assets as monetary stimulus was added to the fiscal stimulus punch bowl. Fixed-income returns struggled, with rising longer-term yields fostered by stubborn inflation and swelling government debt. Precious metals and cryptocurrencies were notable performers on heightened demand from central banks and retail investors, respectively, while familiar themes repeated themselves—including another banner year for the Magnificent 7 in the U.S. and another disappointing (if not slightly encouraging) year for Chinese stimulus expectations. Lastly, investors were treated to a lump of coal from U.S. policy-makers in December, as the Federal Reserve (Fed) took a hawkish turn, calling into question the future path of policy rates in the world’s largest economy.
With that highly abridged look back, let us turn our attention to 2025 and the road that lies ahead. Last year at this time, we expressed our contrarian market views that inflation would remain stubborn instead of subdued and that longer-term interest rates were likely to increase rather than follow central bank policy rates lower. This year, we find ourselves in a somewhat uncomfortable position of being in consensus with market expectations…at least in part. After two consecutive years of strong equity returns, most market strategists are predicting more of the same in 2025. Our view is slightly more nuanced, as we do find ourselves broadly positive on risk assets (both equities and credit) yet also keenly aware of the potential challenges in the coming year.
Notables for the quarter
- Emerging equity: Down 8% on tariff concerns.
- Bitcoin: Up over 45% on new U.S. administration favorable to crypto.
- Tesla: Gained 54%, boosted by Elon Musk’s relationship with new U.S. administration.
- U.S. 10-Year Treasury yield at 4.6%: Stronger data and a hawkish Fed push interest rates up about 80 basis points.
Source: Bloomberg, SEI as of 12/31/24. Past performance does not guarantee future results. Returns in USD unless otherwise noted.
Balancing act
We believe that the relatively robust state of the global economy, particularly in the U.S., combined with continued monetary stimulus measures from central banks around the world, will be enough to keep the rally going into the New Year. However, we say “in part” given what we also see as a precarious balancing act for global markets in 2025. Investors will need to weigh pros and cons on several fronts, including:
- Higher earnings from less regulation and lower corporate taxes versus higher inflation from tariffs and immigration policies.
- Easy monetary and fiscal policies boosting risk assets in underperforming economies versus stimulus measures leading to higher interest rates in outperforming countries.
- Austerity efforts leading to meaningful long-term reform versus tax cuts and inertia failing to alter the current growth rate in government debt.
- Policy changes lessening pressures on commodity prices versus escalating global conflicts and trade wars keeping prices and volatility high.
- Broadening earnings supporting higher equity valuations in the U.S. versus lofty earnings expectations setting the bar too high for elevated price/earnings multiples.
Our trepidation is due to our own weighing exercise and what we see as too many potential outcomes leading to a reacceleration in inflation and higher long-term interest rates.
Important information
SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the Manager of the SEI Funds in Canada.
The information contained herein is for general and educational information purposes only and is not intended to constitute legal, tax, accounting, securities, research or investment advice regarding the Funds or any security in particular, nor an opinion regarding the appropriateness of any investment. This information should not be construed as a recommendation to purchase or sell a security, derivative or futures contract. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice.
