Good year for our equity funds despite December’s setback. Altex Momentum ends 2024 +16.85%, Altex Quality +25.96%, Altex Prudent Growth +11.69%, with only our volatility fund ending 2024 negative (-7.54%). In December, monthly results were more contained in Big Caps (Altex Quality -1.84%) than in All Caps (Altex Momentum -5.95%) or Mid Caps (Altex P. Growth -7.48%), while Volatility rose intermittently, eroding the performance of Altex Tactical by -6.92%.

In general, the year has been constructive thanks to good news from the 3 agents with most influence over markets: Companies, Federal Reserve and U.S. Government.

Companies have been delivering positive results and good growth expectations, especially in the technology sector. The Federal Reserve has been increasingly confident about achieving sustainable control of inflation, avoiding, at the same time, a possible recession. The U.S. government, on the other hand, is expected to change course after Trump’s election, favoring tax cuts, lower regulation and greater discipline of fiscal deficit control.

All this culminated in strong rallies in November, of which the segments that had lagged most –such as Small and Mid caps, US regional banking and government bonds– benefitted.

In December, however, a catalyst caused a reversal in the trend: this excessive optimism rekindled the Fed’s fears of a rebound in inflation, and although it maintained the expected rate cut, it tightened its rhetoric and cooled expectations of future rate cuts. From that moment on, markets focused on employment data as an early warning of wage inflation and, therefore, pointing to a harsh reaction from the FED.

The consequence has been a reversal of November’s momentum, especially in Small & Mid Caps, and medium and long duration fixed income, and a spike in volatility. The market highs are also not helping to reassure investors, who are looking to anticipate a market movement that is difficult to predict. The exception was the USD, that was strong both in November and in December.

Markets:

In December, the S&P 500 was down -2.50%, the Dow Jones industrials -5.27% and the MSCI World -3.50%. On the upside, the Nasdaq 100, up +0.39%, and Europe, up +1.91%, surprised. The Nasdaq was driven by large technology companies, especially Tesla +17% and Alphabet +12%, while the the Euro Stoxx 50, was backed by a movement contrary to that of November.

By company size, Big Caps +0.38% (XLG), Mid Caps +7.28% (MID) and Small Caps -9.32% (VIOO). Strong dispersion in favor of larger companies in the month, contrasting sharply with November trends.

By factors, those with a smaller presence of large technology companies lost the most. Large Growth -0.06% vs Large Value -7.34%. The fall in defensive stocks was also notable, and high-dividend stocks were down -8.22%.

In emerging markets, China recovered (Hang Seng +3.28%) while Brazil and India extended their decline (-4.28% and -3.91%, respectively).

The USD continued to rise against the Euro (+2.17%). The EURUSD closed the year at 1.0355, well below the 1.05 support that had been hampering the USD’s ascent.

The Fed lowered rates on December 18 to 4.5% (upper band) and this time, the US 10-year rate listened to the Fed’s tightening tone more closely, taking inflation fears into account and ending the year at 4.57%.

Despite the fall this caused in bonds and correlated assets, on December 12, the yield curve was also inverted between the 3-month and 10-year maturities. Therefore, the yield curve is now fostering economic growth, unlike in 2022, when it was holding growth back. The sharp swings in bond prices have brought on some volatility, which is likely to continue for a while, although this is not a reason to take on overly defensive positions.

Outlook:

The December correction seems a good opportunity to increase positions in risk assets with positive growth perspectives. For our funds we count on the alert provided by DIPS, which will act as protection in case of a bearish crisis.

December’s correction was moderate, such as the other 7 corrections that have happened since 2022. We must be alert as to which one will turn into a bear market but never anticipate without strong market confirmation.

The world continues to grow and companies with it. The policies that we can expect from Trump are not exactly bearish, so it is better to stay in the market deploying active management and discipline and to continue with the strategies that offer the best risk-return trade-off.

We close the December commentary celebrating the good news that Altex has come first in the Rankia Pro contest in both the Active Equity +22.15% and Active Fixed Income +14.75% categories (a purely objective ranking that only measures the performance of the portfolios among 28 participating managers). Thanks, Rankia Pro, for organizing the contest and to the other participants for presenting their best ideas in a very difficult environment for active management.