2025-01-31

4th quarter 2024 market overview

The last quarter of 2024 was a volatile one for stock markets. US equities continued to be the clear leader in terms of index returns, boosted by Trump’s election as President, but optimism faded somewhat towards the end of the year. In the rest of the world, stock markets were less upbeat, with small positive and negative movements. Investors from the euro area, including our managed investment baskets, were helped by as much as 7% the euro’s depreciation against the US dollar. Investments in US markets (or dollar-denominated) appreciated by the same amount when converted into euro.

In total, developed country shares appreciated by 7.6% in euro terms during the quarter, while developing country shares fell by 0.9%. The main US equity index, the S&P 500, rose by as much as 10.3% in euro terms (2.4% in US dollar terms), while the European equity index, the STOXX 600, fell by 2.9%. Indian shares, which had been rising sharply, fared the worst in the final quarter of last year, falling by 4.5%.

The same themes have dominated the discussions and agenda of investors and analysts over the past quarter as they have throughout the year. Inflation and interest rates are perhaps the most important of these. At the end of the year, inflation rose in the US and remained almost unchanged in Europe. Accordingly, the US central bank is expected to slow down the pace of base rate cuts in 2025, while the European Central Bank is expected to cut at the same pace (to 1.75% by the end of the year). Base rate differentials have had a significant impact on the strengthening of the US dollar against the euro. Another topic of particular interest is the state of the major economies. In the US, GDP growth remained above 3%, while in Europe it was 0.3% and in its largest country, Germany, GDP fell by 0.3% in Q3. Accordingly, the rapid reduction in euro interest rates should give a boost to the faltering European economy. Wars and conflicts in Israel, Lebanon, Syria, and Russia’s aggression against Ukraine are also important events for investors. For our Central European region, the situation in Ukraine is the most relevant. Market participants are of the opinion that the likelihood of a ceasefire has increased with Trump’s victory. If a sustainable ceasefire is indeed reached, this would be a significant positive for stocks in the region, including the Baltic States. Reduced geopolitical risks would encourage foreign investors to return, and companies could look forward to large new orders related to the reconstruction of Ukraine.

The world’s two main central banks, the US Federal Reserve System (Fed) and the European Central Bank (ECB), have extended their interest rate cutting cycle and cut interest rates 2 times each in the last quarter of the year. However, after Trump’s victory, there has been a marked change in expectations regarding possible changes in US economic policy, such as higher tariffs, lower corporate taxes, and higher budget deficits. The change in outlook fueled inflation fears, pushing up yields on US long-term government bonds by around 0.75 percentage points. Meanwhile, in Europe, bond yields have moved little, as euro area inflation has been close to the ECB’s target of 2% for some time. In Central and Eastern Europe, credit agencies have upgraded the credit ratings of several countries, including Croatia, Serbia, Moldova, Montenegro, and Albania, on the back of positive economic prospects.

The price of gold has risen particularly rapidly last year. In US dollar terms, gold has appreciated by 27% last year, and in euro terms (which has been depreciating against the US dollar), the price of gold has risen by as much as 36%. In the run-up to the US presidential election, uncertainty in the markets was particularly heightened, and accordingly the price of gold had reached a new all-time high of USD 2 790 per Troy ounce. However, the gold price subsequently corrected slightly and ended the year at USD 2 624 per troy ounce. However, the appreciation of the US dollar against the euro compensated for this negative development, and the gold price in euro terms at the end of 2024 was close to the record level set in October.