By Craig McAvinue – 1 January, 2025
“The future depends on what you do today”
As we close out the year, global markets have delivered a mixed performance in December. While some indices have managed to extend their upward trajectory from November, others have experienced minor pullbacks.
Data from Google Finance
The USD also had another strong month making the 2024 returns look pretty impressive….
Data from Google Finance
As 2024 draws to a close, I’m sure like many of you reading this it’s frightening to think the year 2000 was now a quarter of a century ago. It was during the year 2000, March to be precise that we saw the peak of the dot com bubble.
The bursting of that bubble took the Nasdaq 17 years to recover. With the same market now having doubled in value since January 2023, there will inevitably be noises around whether we are could experience the same thing again
With another 20% + gain, the S&P 500’s two-year gain of 53% is the best since the rally in 1997 and 1998 which yielded 66%, when the internet was in its infancy. A key driver of these gains is the performance of Magnificent Seven, huge multi trillion dollar businesses. In many cases what is growing these companies at such a rate is their links to Artificial Intelligence (“AI”).
AI is certainly the most talked about innovation since the introduction of the internet. With its ability to automate routine tasks, enhance efficiency and productivity, improve decision making, its 24/7 availability to name but a few benefits would lead us to believe exciting and more efficient times are ahead.
The stellar performances of the S&P and Nasdaq, whilst not solely attributed to the growth of AI, are certainly a huge factor.
Those who are sceptical of this huge, fast growth and see another 2000 bubble should consider that the AI industry is far more tangible than what we were seeing in the Dot com days at the start of the century where much of the “value” was derived from speculation.
There is also far more regard for fundamentals, with the leading players such as Nvidia trading at a relatively low PE ratio compared to similar businesses in 2000.
A crash therefore is highly unlikely though as with any market whose primary driver is the buying and selling, seeing some profit taking leading to lower valuations is most definitely a possibility. In fact the last four days of 2024 saw profit taking which resulted in four straight losing days, the first time this has happened in the S&P 500 in nearly 60 years. So are we seeing the start of a correction or will 2025 start abound with optimism around the state of the economy?
Of course no one knows the answer to the above, but as no one ever got hurt by taking a profit, moving some of these gains into non-market correlated assets is something that is worth considering.
Looking back at other stats in 2024, the biggest winners and losers in terms of local stock market performance were both South American. The two footballing giants of Argentina and Brazil saw their markets experience very different results. Argentina was the world leader with its stock market up a whopping 162% (even more than bitcoin!) whilst Brazil was bottom of the table with 30% losses.
So as we enter into 2025, as usual the analysts have mixed views on whether we will see continued growth or a correction. Investment banking giants Goldman Sachs and JP Morgan have come out with a prediction of around 10% growth, whilst BSA research are suggesting a fall of 32%!
The above of course once again illustrates uncertainty inherent in the markets. No one has a crystal ball so its key you manage your affairs to what suits you.
Having used AI on more than a dozen occasions already this morning as I write this, I personally do not think the runaway train we have here is slowing down anytime soon.
The wealth of information at your fingertips through the likes of Grok and Chat GPT allow us to learn so much so quickly.
I recall a few years ago someone telling me that we were exposed to more information in a day than our ancestors were 100 years ago in a lifetime. With AI going in the direction is it, I don’t think we’re far off having more information exposure in an hour than previous generations had in a lifetime……
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