Blue Chip Portfolio USD Monthly Commentary – Jan 03, 2025

Summary
Although the S&P 500 Index fell short in December, 2024 was a bumper year for US equities. By year end, the index delivered a total return performance of 25%, following on from last year’s 20%+ return. Across the 11 sectors of the index, the Materials sector was the worst performer delivering a return of barely 1%, whereas the Communication, Finance, Consumer Discretionary & Tech sectors returned 33.9%, 29.4%, 27.5% and 24.7% respectively*.

The Blue Chip Portfolio during December managed to stay above water delivering a return of 0.25%, while the SPY ETF, which tracks the S&P 500 Index was down 2.4%. Over the full period of 2024, Blue Chip returned 28.55% whereas SPY returned 24.9%.

As we wrapped up the year, December was anything but smooth sailing for the markets. The Federal Reserve caught investors off guard with a hawkish tone, even after a year of rate cuts. Although the Fed trimmed rates by another 25 basis points, bringing the annual total to 100bps, it hinted at fewer cuts for 2025 – just 50bps. This shift unsettled the markets, leading to the sharpest single day drop in the S&P 500 on a Fed decision day since 2001. By the month’s end, the index reflected these jitters, closing on a sour note.

Treasury yields didn’t hold back either. The 10-year yield climbed to 4.57%, the highest since April, with Q4 adding a hefty 79bps – the sharpest quarterly increase since late 2022. Across the Atlantic, European markets also faced turbulence. Despite another ECB rate cut, their less dovish stance left investors unimpressed. German bund yields rose, and political drama in France, sparked by a no-confidence vote, widened the Franco-German 10-year yield spread to levels last seen during the Eurozone crisis.

At the risk of over simplification, the ‘will they, won’t they’ stance of the Fed, and indeed The Bank of England, essentially saw the Fixed Income markets as one for many investors to ignore. Given the extent of strife and political upheaval across the globe, it is worth noting that Gold delivered its best performance in 14 years offering a 27.2% return, whereas the MSCI Emerging Markets Index returned 8%. In Japan, the central bank shifted their position on interest rates which saw the Nikkei 225 Index return 21.3%.

Individual Stock Performance
December’s market upheaval didn’t spare individual stocks, though a few shone brightly. Broadcom stole the spotlight, delivering exceptional gains that single-handedly lifted the fund’s overall performance into positive territory. Despite many stocks posting negative returns, Broadcom’s stellar run reinforced its status as a portfolio anchor.

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Other standouts included Apple and Microsoft. Apple’s record-breaking holiday sales, fuelled by its latest wearable technology, added to its momentum, while Microsoft saw significant growth in its cloud computing division. These performances highlight the resilience and value of staying diversified with high-quality, forward-looking companies.

December’s challenges underscored the complexities of navigating today’s fast-changing investment landscape. As we enter 2025, investors are closely watching central bank policies, geopolitical uncertainties, and economic growth prospects. Broadcom’s resilience during the month serves as a reminder of the robustness of ‘chip’-focused portfolios. However, as we step back to evaluate the US equities market, the persistent risk of over-concentration remains a significant concern.

With Broadcom now disrupting the status quo, many commentators are shifting their focus to the so-called “Magnificent Eight.” How long this narrow market leadership will persist is uncertain. As the world prepares for the next chapter under Donald Trump’s second presidency, the investment environment is poised for surprises – so expect the unexpected. In stark contrast, AMD’s shares, although also in the semiconductor space, dropped 11.9% as it fell out of favour with investors on the back of slowing sales of PCs and the perception of fierce competition in the chip sector.

*All data provided by Leverage Shares & Algo-Chain. All returns in USD.