Banks and tech stocks have pushed the ASX to record highs, but markets may be underestimating Donald Trump’s trade wars.

As 2024 starts to feel like a distant memory, it might be a good time to look back on the year in stocks — and where you could have made (or lost) the most money.

Overall, it was a good year for the ASX, which hit 24 new records, with most of them occurring between September and November.

This situation is mainly explained by events in the world’s largest economy.

Around this time, interest rates began to fall in the United States and Donald Trump won the US election (promising, among other things, to cut corporate taxes and ease regulation of the US financial sector ).

Locally, the ASX 200 Total Returns Index (which includes dividends) has jumped 12 per cent in the past year.

While this figure is certainly higher than the interest earned from the bank, it is nowhere near as impressive as the performance of overseas stock markets over the past 12 months.

Wall Street’s key indexes, the S&P 500 and the Nasdaq Composite, jumped 25 and 31 percent, respectively.

Several factors explain the superior performance of American markets.

For starters, the US Federal Reserve has already started cutting interest rates, which lowers the cost of borrowing and encourages people to invest their money in riskier businesses with higher returns (like stocks).

In contrast, many leading Australian economists predict the Reserve Bank will only start cutting rates from May as it needs more evidence of a sustained decline in inflation towards an acceptable level (2 to 3 percent).

Another reason is that the companies that have seen the biggest increases in their stock prices this year are those that are investing heavily in the “next big thing”: artificial intelligence (AI). This includes Nvidia (+185pc), Tesla (+74pc), Amazon (+49pc), Google parent Alphabet (+30pc), Apple (+38pc) and Microsoft (+17pc).

So, given Australia doesn’t have large-cap tech stocks with outsized influence on the broader market, the ASX hasn’t risen as much.

CBA’s term deposits are worth more than its dividends

But it has a small tech sector, filled with companies that many casual investors wouldn’t recognize (like logistics software company WiseTech Global and data center operator NextDC).

Taking dividends into account, technology is the sector that outperformed on the ASX 200, up 51% year-on-year, followed by financials (+36%) and consumer discretionary (+26%). %).

The financial sector was boosted by shares of major banks, including Commonwealth Bank (+37%), Westpac (+41%), NAB (+21%) and ANZ (+11%).

ABC, in particular, seems overrated. Its share price is 26 times higher than analysts’ estimates for its earnings for next year (also known as forward price-to-earnings ratio), making it the most expensive bank in the world.

By comparison, the shares of US banking giants (i.e. JP Morgan and Goldman Sachs) are 14 times higher than expected future earnings – and their earnings are much higher than those of CBA.

“The ASX big four banks have had a tremendous run in 2024,” Wilson Asset Management senior portfolio manager Matthew Haupt wrote in a note to clients.

“CBA’s 3 per cent dividend yield now pales in comparison to the 4.5 per cent yield you could get with a CommBank term deposit. While these are excellent businesses, it doesn’t is of no value to us.”

At the other end of the spectrum, energy (-15%), materials (-13%), and consumer staples (-1%) were the sectors that suffered the largest losses.

The energy sector, dominated by the likes of Woodside and Santos, has been “impacted by the oil supply and demand outlook”, according to Julia Lee, head of client coverage at FTSE Russell.

Indeed, the barrel of Brent crude oil has plunged since its peak ($91 in April) and is now trading around $74.

This is partly due to relief that a full-scale conflict has not erupted between Israel and Iran, the main oil producer. It helped that US President Joe Biden pressured Israel not to target Iran’s oil infrastructure (which could potentially restrict oil supplies to the Middle East and trigger a new surge in inflation).

Concerns have also been raised about China’s slow economic recovery (which has major implications for oil demand, given that the Asian financial giant imports more oil than any other country).

These concerns about Australia’s largest trading partner – particularly falling property prices and construction activity in China – mean the country may not need as much steel.

This therefore contributed to the fall in the price of Australia’s main export, iron ore, from US$136 (in January) to US$103 (in December).

As a result, shares of BHP (-21pc), Rio Tinto (-14pc) and Fortescue (-37pc) fell sharply throughout the year, and weighed on the ASX materials sector.

Best and worst performers

For those wondering how they could have made a lot of money in the stock market (in hindsight), here are the stocks that made some of the biggest gains:

Some of these are smaller companies in the Australian technology sector, which are not yet profitable (Zip Co) – but which are benefiting from US interest rate cuts and possible Australian rate reductions in the year next.

Biotechnology company Mesoblast saw its share price soar after receiving approval from the US Food and Drug Administration (FDA) for its cell therapy, used to treat children suffering from complications that can arise during of a bone marrow transplant.

JB Hi-Fi reported better-than-expected profits and defied expectations for a decline in consumer discretionary spending.

AMP, Qantas and WiseTech Global have rebounded after their share prices fell significantly in recent years due to various scandals.

They range from the massive billing of “no service fees” to customers (AMP), to the sale of tickets for flights that do not exist and the illegal dismissal of thousands of workers (Qantas), including the trial of a CEO against a former lover – not to mention allegations of bullying – triggering an avalanche of bad publicity for the company (WiseTech).

On the other hand, here are the stocks on which investors could have lost the most money:

Most of the companies on the “worst performing” list are lithium stocks.

After all, the price of lithium (a key component of electric batteries) has collapsed by almost 90% over the past two years – driven by a massive oversupply of the resource, slowing sales of electric vehicles and China’s slow economic recovery.

Star Entertainment, meanwhile, was (yet again) proven unfit to hold a casino license, reported a massive annual loss of $1.7 billion, and was in danger of running out of money (until its lenders are stepping in with a $200 million cash injection). .

Shares of Mineral Resources fell 51 per cent, with the conduct of its founder and chief executive Chris Ellison a significant contributing factor.

In particular, Mr Ellison was found to have enriched himself at the expense of shareholders, and an internal investigation found he had “failed to act with integrity”.

The mining billionaire allegedly engaged in tax evasion, sold mining equipment to MinRes at grossly inflated prices (through an offshore company), leased properties to the company at rates higher than those of the market and was reportedly pressured to resign as chief executive within 18 months. .

A “difficult” year ahead

2025 is unlikely to be a smooth year for the ASX, with many market observers expecting high volatility – largely due to the new US president’s policies.

Mr. Haupt expects a “resurgence in trade wars driven by Trump’s return to power and his commitment to imposing significant tariffs.”

“Markets do not seem to be pricing in this potential disruption and if retaliatory measures are to be taken by China and the EU (European Union), the start of the year could be difficult for risk assets,” he said. he declared.

“Tariffs are seen as a negotiating tool, so the headlines will be worse than reality.”

Meanwhile, AMP chief economist Shane Oliver expects the stock market to “return to a much more restrained 7% over the coming year”, especially given concerns that some segments of the market appear overvalued.

“Strained valuations after two strong years, lingering risk of recession, likelihood of a global trade war and lingering geopolitical issues will likely lead to volatility in 2025 with a 15 percent correction along the way very likely.

“But with central banks continuing to cut rates, with the RBA expected to start cutting them in the first half of 2025 and with prospects of stronger growth later in the year supporting earnings, stocks should still record satisfactory returns on investment.”