Following the strong year for financial markets in 2023, 2024 began with more modest expectations for returns given concerns related to geopolitical risks and the prospects of stubborn inflation.
Geopolitical risks were present throughout the year. These were highlighted by continued global conflict, deteriorating political stability in Europe, and key regions of the world going to the polls including the closely-watched US presidential election that saw the return of Donald Trump to the Oval Office. Inflation concerns were an ongoing consideration as markets continued to assess the effectiveness of policymakers’ interest rate hiking cycle of 2022 and 2023.
However, solid economic growth emerged in many parts of the world and inflation expectations appeared to normalize. Central Banks from major developed markets started to reduce short-term interest rates and as a result, most equity markets delivered exceptional performance.
Driven by buoyant consumer spending and AI-driven private investment, the US economy was a pleasant surprise. US equities posted a second consecutive year of above 20% returns, driven by a heavy weighting to the technology sector and the underlying concentration to a handful of large cap stocks.
The interest rate cuts delivered by policymakers supported bond markets at the shorter end of the yield curve. However, long-duration yields rose as US growth numbers had investors revisit inflation concerns. Relative to the uneven performance in bond markets, credit markets fared well driven by low default rates and healthy base rates.
In summary, risky assets performed well in 2024. As a result, PSPP’s diversified portfolio experienced a very strong 1-year return of 14.8%. The same general risky asset theme has played out over an extended period, leading to a strong 4-year portfolio return of 8.5%.