Quarter in Review: December 2024

The December-24 quarter saw heightened volatility as the markets wrestled with the results of the US Presidential Election and swings in bond market expectations. This resulted in an uneven experience with markets weaker in October, recovering in November and softening in December. Interestingly despite bond markets pricing in a “higher for longer” scenario over the course of 2024, this has been well digested (or perhaps ignored) by equity markets where multiples have continued to expand. These are the key highlights:

1. Global Markets: The ASX300 Accumulation Index was down 0.8% over the quarter – biased by a weaker December, down 3.1%. In contrast, offshore indexes posted strong gains with the S&P500 up 2.4% and NASDAQ up 6.4%. Small caps did materially worse across the board, with the ASX Accumulation Small Caps Ordinaries down 1.0% and Russell 2000 Index modestly up 0.3%. With that said, the 2024 calendar year still saw the ASX market post a total return of 11.4%, echoing a similar low double digit return experienced in 2023. This largely reflects two years of strong multiple expansion, which accounted for 7% of this year’s total returns.
2. Sector Performance: Despite the index modestly down over the quarter, sector performance was highly varied. Only 7 of 11 sectors posted positive gains and the differential between the best and worst performing sector in the order of 18.0%. The best performers included Financials up 6.3%, Industrials up 3.2% and Communication Services up 2.2%. The major sector drags came from commodities with Materials down 11.7% and Energy down 5.3%. REITS were also a poor performer shedding 6.3% largely due to rising yields and RBA rate cut expectations being pushed out.
3. Rates and Yields: Benchmark yields saw marked increases over the quarter, with the US 10-Yr up 79bps to 457bps and the AUS 10-Yr up 39bps to 436bps. This saw a reverse from generally dovish yield movements over the September quarter. In the US yield movements reflected higher inflationary expectations via the Trump presidential victory. The Federal Open Market Committee’s (FOMC’s) December meeting also saw Federal Reserve Chair, Jerome Powell flagging a slower pace of rate cuts in 2025. Locally Australian yields were undecided if the first rate cut would occur in February-25 or out to May-25. While the RBA’s December meeting highlighted a possibility of a February rate cut in reaction to softer GDP, employment data continue surprising to the upside which combined with the weakening AUD down 10.5% to now 62c, introduces sources of potential inflation risk for our economy.
4. Commodities: Commodity trends were mixed. Iron Ore prices fell 7.5% over this period, cooling off from the China rally experienced in the past quarter which drove underperformance in the Materials sector. Market speculators had been betting on China stimulus announcements in light of weakening economic data and potential Trump tariffs. Brent Oil was stronger up 4.0% after a painful decline in the September quarter of 16.9% as the market expected oversupply.
5. Corporate News: The December quarter is typically a seasonally relevant period for IPOs, however remained soft with recent debutants struggling. First day performance saw Digico REIT (the biggest IPO since Viva Energy in 2018) fall 9.0% and ending the quarter down 11.2%. This was similar for Symal (first day flat, quarter end down 8.1%) and Cuscal (first day down 7.6%, quarter end down 7.2%). Despite this, deal activity has been resilient with Amcor announcing a merger with Berry Global which would form the biggest plastics packaging company in industry at US$24bn sales, expected to close mid CY25. Pinnacle also raised $400m to acquire US based private lender VSS and UK based distribution platform PAM.