The Australian sharemarket had a remarkable performance in 2024, adding nearly $200 billion to the value of its benchmark S&P/ASX 200 index. Despite a notable pullback in December, the year marked significant growth for the index, closing with a 7.5% increase. This was well above the average annual gain of 3.8% over the past decade, reflecting the resilience of local markets amidst global economic shifts.
The rise in the ASX 200, which added $196.5 billion in market value, was fueled largely by a surge in global stock markets, especially the United States, where the tech sector, particularly driven by artificial intelligence (AI) stocks, propelled major indices to record highs. However, the latter part of the year saw some volatility, especially in the week leading up to Christmas when stocks experienced their most significant drops in months.
The Australian market’s robust performance in 2024 contrasts sharply with the challenges seen in 2022, when the ASX 200 lost 5.5% due to soaring interest rates. Despite facing the highest domestic interest rates since 2011 and a slight drop in corporate earnings forecasts, the market’s 7.5% gain in 2024 showcases its strength. Banks were standout performers, while iron ore producers struggled.
Superannuation Funds Post Strong Returns
Superannuation funds also enjoyed a prosperous year. According to SuperRatings, the median balanced option posted an 11.5% return, with the majority of funds exceeding 10%. This marks the third best return in the past decade, following a strong recovery since the market downturn in 2022. These gains are particularly notable as they come after a period of uncertainty, driven by global economic disruptions and rising interest rates.
Global Market Influence and Volatility
While the ASX 200 achieved solid growth, it was overshadowed by the performance of global indices, particularly the US stock market. The S&P 500 saw a rise of around 24%, and the Nasdaq surged nearly 30%. The strength of the US market, driven by the AI boom and a rise in the valuations of major tech companies like Nvidia, played a significant role in boosting global stock prices, including in Australia.
However, a shift in the US Federal Reserve’s stance towards rate cuts, which began to slow in late 2024, led to a surge in market volatility. As a result, the Australian market experienced a more pronounced decline in the final weeks of the year, after hitting a record high of 8,514.5 points in early December.
Looking Ahead: Challenges and Optimism for 2025
As 2025 approaches, market experts are keeping a close eye on several key factors that could shape the financial landscape. The Reserve Bank of Australia (RBA) is expected to begin cutting interest rates in mid-2025, as inflation continues to move towards target. However, uncertainty remains, particularly around the fiscal and trade policies of the incoming US administration under President Donald Trump, as well as ongoing geopolitical tensions, including the conflicts in Israel and Ukraine.
AMP Chief Economist Shane Oliver highlighted the dual nature of market sentiment as investors remain cautious amid rich valuations and rising bond yields, while also buoyed by the possibility of rate cuts and the potential for stronger economic conditions in the US.
For the Australian sharemarket, the outlook for 2025 hinges on a combination of global economic recovery, local policy shifts, and the resilience of key sectors. While the strong performance in 2024 has set a solid foundation, challenges lie ahead, and market participants will need to navigate these complexities in the year to come.
