2024’s unanswered questions: 3 things we want to know

U.S. equities pared some of their gains this week.

The S&P 500 (-0.6%) has fallen despite stellar performance from its largest cohort (Magnificent 7 +3.1%).

Alphabet (+9.9%) posted a strong week after its breakthrough in quantum computing and an expansion of its Waymo ride-sharing business in Miami. Restructuring news bolstered Warner Bros. (+17.2%), which was the best-performing stock in the index.

In fixed income, rates across the curve were higher, and the curve steepened. The 2-year (4.19%) rose 9 basis points (bps), and the 10-year (4.33%) was higher by 17 bps. Treasuries sold off in response to slightly elevated initial jobless claims and firmer headline producer prices (though the core measure came in line with Street expectations).

In commodities, gold (+1.8%) and oil (+3.2%) both moved higher amid rising geopolitical risks in the Middle East.

As we approach the end of the year, we reflect on the many questions answered in 2024: Would the economy navigate a soft landing? Who would win the U.S. presidential election? Would the S&P 500 reach a new all-time high? In today’s note, we shift gears and examine those questions that still remain unanswered—across Chinese growth, the global easing cycle and tariffs.

2024’s unanswered questions

Will China’s stimulus translate to better growth? Throughout 2024, the Chinese government has done what it could to support growth, but it hasn’t really stimulated the economy. The measures were focused on increasing credit, which was already abundant. Rather, the market was looking for policies that could increase demand.

Starting in September, Chinese officials started to shift more toward what the market wanted—stimulus focused on increasing consumption. Officials forward guidance for 2025 indicates room for fiscal and budget deficit expansion. Government officials have also left the door open to further stimulus if U.S. tariffs increase. For now, the proposals are still conjecture, and the market is looking for something more concrete. Instead, what was delivered was restructuring RMB 14.3 trillion of government debt. Despite lacking more substance, the market is taking the forward guidance in stride. Since September, Chinese onshore equities have nearly 3x’d the performance of U.S. large-cap stocks. It seems that markets are getting comfortable with government assigning a quasi floor beneath growth.

But there is still reason to be cautious, as a floor is different than stimulating growth. For example, over the same period, 10-year Chinese government bond yields (which climb among increasing growth estimates) are at their lowest level on record. What’s more, the yuan has depreciated ~3.5% relative to the U.S. dollar since September. 

All that is to say the market seems to be grappling with how these factors shake out and the extent and sector focus of stimulus yet to come. We will get more clarity around growth targets in March 2025—until then, we remain cautious about the market.

Are we past peak easing? In our 2024 outlook, we predicted a year of global monetary easing. That turned out to be the correct call. During 2024, 27 of the 37 central banks, including all major developed markets except Japan, lowered interest rates in unison.

Easing policy and solid economic activity (especially in the United States) helped drive global equities higher +23%, and U.S. equities (S&P 500 +29%) to 57 new all-time highs. However, with the soft landing confirmed, could we already be past the peak of central bank rate cuts?

We’ve already seen some global central banks raise rates. As we wrote in the 2025 Outlook, Brazil, which was one of the first central banks to start the cutting cycle in 2023, has reversed course and started a new tightening cycle. Just this week, Brazil raised policy rates 100 bps—its biggest hike since May 2022. Other emerging market central banks (e.g., Mexico and Ukraine) may be on a similar path in order to anchor inflation expectations and long-term rates amid the backdrop of mounting fiscal deficits.

Could the United States be next? We don’t think so. The Federal Reserve has told us it’s on a path to a more neutral policy stance. That means lower policy rates. The question, which no one knows the answer to, is at what level is policy neutral? For now, it’s still likely the fed funds rate will be above the top end of the ranges of most estimates. We expect the Fed to keep gradually lowering rates (including a 25-basis-point cut at its December meeting) until they get closer to a 3%–4% range.

Tariff talk, what’s to come? President-elect Trump has campaigned on increasing tariffs against U.S. trading partners. The United States already has export controls on semiconductors, blacklisted Chinese companies, and placed restrictions on AI and supercomputing. Furthermore, Trump has proposed a 60% tariff on all Chinese goods and up to 10% on all other imports.

China has responded by banning the export of several materials (of which it’s the dominant producer) to the United States. The economic impact of this ban is relatively narrow, but the overall impact grows when you consider the commodities’ importance as inputs in several key products, such as semiconductors, satellites and night vision goggles.

The move does point toward a further escalation of already tense trade relations. The United States is reliant on imports across a number of industries, including critical minerals. But it’s not just China: Trump also threatened to impose 25% tariffs on goods from Mexico (the United States’ largest trading partner) and Canada. The potential for increased trade restrictions under a new Trump administration has renewed trade policy uncertainty and raises the risk of further retaliation across these industries.

What does this mean for the United States? Tariffs are likely to lead to higher inflation without corresponding economic growth. The New York Federal Reserve studied the effects of the U.S.-China trade war during 2018–2019 and found that it increased the Consumer Price Index (CPI) by 0.3%, which was a one-time rise. All else equal, this puts upward pressure on the fed funds rate, and with higher interest rates, we would expect dollar strength to persist. However, tariffs alone are likely not enough to derail our overall constructive view.

Bonus: Will the Santa Claus rally visit markets in 2024? Historically, the last month of the year is a good one for the S&P 500. Consumers spend more on retail during the holiday season, the “Santa Claus” rally (where stocks tend to rise toward the end of the year) and general optimism moving into the new year tend to benefit the calendar period.

Since 1928, the S&P 500 has averaged a 0.7% monthly return. December tends to be a more favorable month for equities, averaging 1.3%—nearly double. What’s more, elections don’t seem to hinder December returns. In fact, they’re higher in election years on average (1.6%).