In 2024, the global financial market experienced an unprecedented transformation. From the Bank of Japan's first interest rate hike in 17 years to the Federal Reserve initiating a new round of rate cuts, from the market frenzy triggered by Trump's election victory to the political turmoil in South Korea, from$CrowdStrike (CRWD.US)$the global system paralysis caused by events to$ASML Holding (ASML.US)$the turbulence in technology stocks brought on by poor performance results, and then to$Bitcoin (BTC.CC)$breaking the $0.1 million mark and A-shares setting a new record high for foreign capital inflow—this year, the financial market witnessed a significant shift in monetary policy, profound impacts of geopolitics, fluctuations in the Technology industry, and a major reconstruction of global asset allocation.

These events not only changed the pattern of the global financial market but also profoundly influenced the future direction of the world economy. They reflect the tortuous process of global economic recovery in the post-pandemic era and showcase the far-reaching impact of technological innovation and geopolitical struggles on financial markets. In this grand market transformation, every significant event acts like an important chess piece, together constructing the grand blueprint for the global financial market in 2024.

Major pivot in monetary policy.

With the changes in the global economic situation, the monetary policies of central banks in various countries have begun to undergo significant pivots. In this process, the major pivot in monetary policy is undoubtedly one of the most prominent events in the 2024 financial market. From the interest rate hikes by the Bank of Japan to the rate cuts by the Federal Reserve, the shifts in policy are closely linked to the flow of global capital.

Japan bids farewell to the era of negative interest rates, marking the first rate hike since 2007.

In March 2024, Japan officially bid farewell to the era of negative interest rates, a change largely attributed to strong domestic wage growth, with a 5.28% wage increase agreed upon by large enterprises and an average monthly salary increase of 5.1% for formal employees, achieving a new high in 33 years, forming a positive cycle with the continually rising inflation. This marks that Japan seems to have escaped the long-term economic slump and deflationary predicament. Moreover, the improvement in economic conditions, the urgent need for normalizing monetary policy, and the market's stable expectations regarding adjustments in the Bank of Japan's policies together constitute significant driving forces for ending the negative interest rate policy. Although the yen's exchange rate did not appreciate as expected after the interest rate hike, instead hitting a four-month low, it did not affect the forward-looking and rational nature of the Bank of Japan's decision-making, marking an important step for Japan in adjusting its monetary policy.

This policy shift has had a profound impact on global financial markets. Firstly, as Japanese interest rates rise, the long-standing arbitrage trades where investors borrow low-interest yen to invest in high-yield assets began to unwind, triggering fluctuations in the global financial market. Secondly, since Japanese investors are the largest overseas holders of U.S. Treasuries, the rise in domestic interest rates in Japan may lead to a return of funds, thereby putting pressure on the U.S. Treasury market, pushing up U.S. bond yields, which in turn affects the overall borrowing costs in the USA. At the same time, this policy shift also triggered fluctuations in the Asian stock markets, with South Korea's KOSPI index and Hong Kong.$Hang Seng Index (800000.HK)$showing significant declines, along with U.S. stocks.$S&P 500 Index (.SPX.US)$and$Dow Jones Industrial Average (.DJI.US)$It also faces selling pressure, especially in industries with a high correlation to the Japanese market.

Looking ahead, as the Japanese economy continues to recover and inflation levels stabilize, the Bank of Japan is expected to cautiously adjust its monetary policy, gradually moving towards a more normal interest rate environment. This process may have far-reaching effects on global financial markets, including the unwinding of arbitrage trades, funds returning to the U.S. Treasury market leading to rising yields, and fluctuations in Asian stock markets and U.S. stock markets. In particular, the U.S. stock market, especially tech stocks, may face significant pressure. According to analysts at Industrial Bank, earnings expectations for U.S. tech stocks are declining, combined with further unwinding of yen arbitrage trades, which may trigger a new round of market volatility. In the bond market, Japanese government bond yields are expected to rise, which may drive global bond yields up and have profound impacts on global capital markets.

For the first time in over four years, the Federal Reserve has cut interest rates, marking the beginning of a new cycle.

In contrast to the Bank of Japan's interest rate hike policy, the USA has taken a completely different direction. In September 2024, the Federal Reserve announced its first rate cut of 50 basis points in over four years, lowering the target range for the federal funds rate to 4.75%-5.00%. This decision was based on U.S. inflation continuing to fall back to near the 2% target level and signs of softness beginning to emerge in the labor market. Data shows that the core PCE price index in the USA increased to 2.4% in November, while non-farm payroll growth has notably slowed, and the unemployment rate has slightly increased to 4.2%. These indicators collectively support the Federal Reserve's decision to shift towards easing.

This policy shift immediately triggered a strong reaction in global financial markets. The three major U.S. stock indices collectively surged, with the Nasdaq index rising more than 3% in a single day, and the S&P 500 Index and Dow Jones Industrial Average rising 2.5% and 2%, respectively. Tech stocks and growth stocks performed particularly well, as these companies are more sensitive to interest rate levels. Meanwhile,$USD (USDindex.FX)$A significant downturn has led to a general strengthening of Emerging Markets currencies. In the bond market,$U.S. 10-Year Treasury Notes Yield (US10Y.BD)$A substantial decline has driven a general strengthening of the global bond market.

Looking ahead to 2025, the market generally expects the Federal Reserve to continue advancing the interest rate cut process, a consensus primarily based on the assessment that the U.S. economy may experience a mild recession in the second half of 2024. As the rate cut cycle progresses, it is anticipated to continue supporting the valuation of risk assets, particularly Technology and growth stocks may continue to benefit. Morgan Stanley expects that during this round of rate cuts, the S&P 500 Index is likely to break through the 5000 point mark. However, caution is also needed for the intensified recession risk that may cause a decline in corporate earnings, potentially offsetting the support of the low-interest-rate environment for the stock market. Additionally, a shift in Federal Reserve policy could also prompt other major global central banks to follow suit with rate cuts, thereby initiating a new round of Global monetary easing, which would inject new liquidity dynamics into the global Capital Markets.

Geopolitics and market volatility

In addition to changes in monetary policy, geopolitical turmoil in 2024 has also become a focal point for financial markets. From Trump's victory to political turmoil in South Korea, political factors continuously impact investor confidence and market volatility.

Trump's victory triggered a market restructuring: U.S. stocks hit new highs, and cryptocurrencies soared.

In November 2024, Trump won the U.S. presidential election, immediately triggering a violent reaction in the global financial markets. The three major U.S. stock indices hit record highs, with the Dow Jones Industrial Average soaring over 1,300 points in a single day, an increase of 3%; Nasdaq rose by over 400 points, up 2.25%; and the S&P 500 Index increased by 120 points, gaining more than 2%. In this wave of 'Trump trade' frenzy, $Tesla (TSLA.US)$performance is particularly outstanding, having increased by 39% since Election Day, with a market capitalization increase of over 300 billion dollars. As a typical 'momentum stock', Tesla's rise is expanding in a snowball effect, and options market data shows that the nominal trading value of Tesla options reached 145 billion dollars daily, far exceeding other individual stocks.

In the cryptocurrency field, Trump's victory has sparked a wave of frenzy. Bitcoin broke the threshold of 80,000 dollars, setting a new historical high, and the total market capitalization of the global cryptocurrency market surpassed 3 trillion dollars. Cryptocurrency-related stocks also surged significantly, among which $Coinbase (COIN.US)$increased by 30%, $MicroStrategy (MSTR.US)$increased by 13%, $Robinhood (HOOD.US)$A surge of 20%. This upward trend is mainly due to Trump's promise to make the USA the "global cryptocurrency capital" and plans to establish Bitcoin reserves.

Looking ahead, the market generally expects the Trump administration to launch a series of bullish policies, including tax cuts, deregulation, and support for technological innovation. Top brokerages like Citigroup and Goldman Sachs quickly released research reports emphasizing that Trump's policies might again drive the market, especially the performance of U.S. stocks. However, potential risks also need to be monitored. First, if Trump implements high tariff policies, it could harm large multinational corporations, while cracking down on immigration could raise labor costs. Second, excessive optimism in the market could lead to asset bubbles, particularly in the fields of cryptocurrencies and tech stocks. Finally, Trump's protectionist trade policies could trigger uncertainty in the global economy, thereby affecting market stability.

South Korea's political turmoil.

In addition to the USA, in December 2024, South Korea's political scene also experienced significant fluctuations, triggering a violent reaction in the capital markets. Less than six hours after President Yoon Suk-yeol announced an emergency martial law, it was hastily revoked, leading to a severe political crisis. Subsequently, the South Korean National Assembly overwhelmingly passed a second impeachment motion against Yoon Suk-yeol with 204 votes in favor, making him the third president to be impeached by the National Assembly following Roh Moo-hyun and Park Geun-hye. This political turmoil immediately sparked a violent reaction in the global capital markets, with the South Korean Composite Stock Price Index plunging 2.3% at opening, and foreign investors net selling about 2.4 trillion won in stocks within two weeks, while the exchange rate of the won against the U.S. dollar briefly fell below 1452, reaching its lowest level since the global financial crisis.

This political crisis has had a ripple effect on the global capital markets. South Korean companies listed in the USA suffered heavy losses, including the e-commerce giant$Coupang (CPNG.US)$whose American Depositary Receipts briefly fell 9.8%, and POSCO's American Depositary Receipts also dropped 4.4%. To stabilize the market, the South Korean government acted swiftly, with the Bank of Korea promising to provide unlimited liquidity support and conducting a reverse repurchase operation of 12 trillion won in a single day. Meanwhile, the Financial Services Commission prepared a 10 trillion won market stabilization fund, ready to be injected into the market at any time.

Looking ahead, the uncertainty in the political situation in South Korea may continue to ferment. The Constitutional Court will make a ruling on the impeachment case within 60 days, and if the impeachment is successful, South Korea will hold a presidential election within 60 days. This political uncertainty may continue to affect investor confidence, leading to ongoing capital outflows from the South Korean market. Analysts expect that until the political situation stabilizes, South Korea's assets may remain under pressure, and investors might require a higher risk premium to invest in the Korean Won and South Korean stock market. Additionally, the South Korean central bank has lowered its 2024 economic growth forecast from 2.4% to 2.2% and its 2025 forecast from 2.1% to 1.9%. This uncertainty in economic outlook may further exacerbate market volatility.

Volatility and Innovation in the Technology Industry

CrowdStrike software update causes global IT system outages.

In 2024, the volatility in the technology sector is not merely triggered by market fluctuations; various technological events have also intensified the uncertainty in the industry. On July 19, 2024, a software update from CrowdStrike triggered a large-scale system crash globally. This incident caused approximately 8.5 million Windows devices worldwide to experience blue screen crashes, affecting transport, finance, medical, retail, and other sectors in more than 20 countries. The direct cause of the incident was a configuration error during the update of CrowdStrike's Falcon Sensor product, which created compatibility issues with the Windows system, leading to repeated system crashes. This failure not only affected ordinary end-user devices but also impacted numerous servers and cloud nodes, resulting in multiple$Microsoft (MSFT.US)$and AWS Cloud Computing Service disruptions.

This incident had a severe impact on global financial markets, including Bank of America.$Nomura Holdings (NMR.US)$Employees of multiple Financial Institutions, including Bank of America, were unable to log into the system, causing some hedge funds to face trading interruptions. The regulatory news release platform of the London Stock Exchange was also affected, leading to a delay in the timely release of price-sensitive information. In the Capital Markets, CrowdStrike's stock plummeted over 13%, hitting a six-month low, with several investment banks lowering their Target Prices. Microsoft's stock also dropped 2.5% in pre-market trading.

In response to the incident, CrowdStrike quickly took remedial measures, including retracting the problematic update, providing repair tools, and offering 24x7 service support to affected customers. Although the company's rapid response earned some customer recognition, the incident still led to about 60 million dollars in transactions being postponed in its sales pipeline. Looking ahead, this event may prompt profound reflection and reform across the entire cybersecurity industry. Various government agencies and security experts are calling for Microsoft to redesign the Windows system, ensuring that security tools function while allowing the system to automatically recover in the event of issues. This trend of transformation may lead to a reshuffling of the cybersecurity industry landscape, affecting the valuations and market performances of related technology stocks, including CrowdStrike and Microsoft. Additionally, this may prompt institutional investors to reassess the investment risks of cybersecurity companies, having a far-reaching impact on the capital flows within the entire Technology Sector.

Signal of cooling AI craze: ASML's poor performance triggers turmoil in global tech stocks.

After a surge in the semiconductor Sector in the first half of the year, there is some market pressure at year-end. On October 16, 2024, global lithography giant ASML unexpectedly released its third-quarter Earnings Reports early due to "technical issues," causing severe fluctuations across the global semiconductor Sector. The Earnings Reports showed that ASML's third-quarter order amount was only 2.6 billion euros, far below the market expectation of 5.4 billion euros, and the company lowered its sales target for 2025 to a range of 30-35 billion euros, significantly down from the previous expectation of 30-40 billion euros. This bearish news caused ASML's stock to plunge 16%, marking the largest single-day drop since 1998, with its Market Cap evaporating more than 50 billion dollars in one day.

This event triggered a chain reaction in the global Capital Markets. Affected by ASML's poor performance, global chip stocks saw their Market Cap evaporate by more than 420 billion dollars.$PHLX Semiconductor Index (.SOX.US)$Setting the largest single-day drop of 5.3% since September. In the U.S. stock market,$NVIDIA (NVDA.US)$The drop exceeded 4.69%, $Advanced Micro Devices (AMD.US)$ a decrease of 5.22%, $Intel (INTC.US)$ a decrease of 3.33%, leading to overall pressure on Tech Stocks. Asian markets were similarly affected, with Tokyo Electron once plunging by 10%, $Taiwan Semiconductor (TSM.US)$the decline reached 3.3%.

Looking ahead, while ASML Holding's CEO Peter Wennink emphasizes that there is still strong growth potential in the AI field, the recovery pace in other market sectors is slower than expected. Citigroup Analyst Atif Malik points out that the slowdown in non-AI application growth was anticipated, but the downward adjustment exceeded market expectations. Some investors believe that this may be a unique issue for ASML Holding rather than a systemic risk for the entire industry. As China's economic stimulus measures advance, they may drive a recovery in chip demand. However, this incident has also exposed the structural challenges faced by the semiconductor industry, which is expected to prompt investors to reassess Tech Stocks, particularly the valuation levels of AI-related companies, and the market may enter a stage of more rational valuations.

AI and Robotics Technology Innovation

In 2024, significant breakthroughs were achieved in the fields of AI and robotics technology, with Tesla successfully realizing mass production of its humanoid robot Optimus, marking the transition of this technology from science fiction to reality. Tesla expects to produce at least 1,000 Optimus robots by the end of 2025 and plans to achieve large-scale production in 2026. This robot not only possesses flexible hand movements and autonomous operating capabilities but is also widely used in Tesla's manufacturing processes, enhancing production efficiency. Meanwhile, the startup Figure AI is also accelerating the commercialization process of its humanoid robot, which has already begun to be used in large manufacturing companies such as BMW. These advancements indicate that humanoid robot technology is rapidly maturing and gradually entering the stage of practical application.

At the same time, $Apple (AAPL.US)$ the company has also stepped up its efforts by launching the new AI device Apple Intelligence, aimed at deeply integrating AI into its products. The release of the new iPhone 16 marks Apple's official entry into the generative AI field. Although the market reaction has been tepid, Apple's efforts demonstrate its emphasis on future technological trends. By embedding AI capabilities within its smartphones, Apple hopes to enhance user experience and strengthen market competitiveness.

These technological breakthroughs have had a profound impact on the Global Capital Markets. In the U.S. stock market, technology giants like Tesla and Apple have seen significant increases in their stock prices, with investors optimistic about the prospects of the AI and robotics fields. Tesla's Market Cap increased by hundreds of billions of dollars in a short period, and Apple's AI strategy has attracted significant attention; despite intense competition, it is still seen as a key driver of future growth.

Looking ahead to 2025, as AI and robotics technology continues to advance, these fields are expected to encounter even greater development opportunities. Analysts generally believe that the humanoid robot market will expand rapidly in the coming years, potentially becoming a multi-trillion-dollar industry. The ongoing innovation from Tesla and other technology companies will drive the enhancement of industry standards while potentially triggering a new investment boom. However, investors must also pay attention to the uncertainty of technological developments and potential regulatory challenges, as these factors could impact the market's valuation of related companies.

Global Asset Allocation Restructuring

Changes in monetary policy and the results of the U.S. presidential election, particularly the political context of Trump's victory, have become significant driving factors for market volatility. With the adjustment of monetary policy and the anticipated impacts of Trump's administration, traditional safe-haven assets such as Gold and Digital Currency Bitcoin, as well as the yen, have shown significant fluctuations. These fluctuations are not only a direct response to market sentiment but also reflect the reconstruction of the global financial system. Investors, in the face of these fluctuations, have had to reassess the profound impacts of global political and economic changes on asset prices.

Assets such as Gold and Bitcoin have significantly appreciated.

In 2024, under the backdrop of increasing global economic uncertainty, Gold and Bitcoin performed strongly as major safe-haven assets. Gold prices broke through $2,700 per ounce, reaching a historic high, with an annual increase of 24%. Bitcoin performed even more impressively, with prices soaring from $40,000 at the beginning of the year to over $100,000, achieving a more than 130% increase within the year, and its market cap surpassed $2 trillion, overtaking Silver to become the seventh-largest asset globally.

In 2024, Gold surged strongly, with prices continuously reaching new highs, primarily driven by escalating global uncertainty, changes in U.S. monetary policy, and the ongoing accumulation of Gold by various central banks. First, the rise of geopolitical risks is a key factor driving the demand for Gold. Global tensions, including the ongoing Ukraine conflict, instability in the Middle East, and fluctuations in U.S.-China relations, have led investors to shift their capital towards safe-haven assets, with Gold being the clear choice.

The slowdown of the U.S. economy and the adjustment of the Federal Reserve's monetary policy are also significant reasons for the increase in Gold prices. Although the dollar remained strong in the first half of 2024, the market generally expects that the Federal Reserve will enter a rate-cutting cycle, reducing investors' interest in dollar assets and indirectly driving up Gold prices. Additionally, Gold's anti-inflation characteristics make it a favored safe haven under global inflationary pressures, especially against a backdrop where inflation, although slightly alleviated, remains above historical averages, Gold continues to serve as a strong store of value.

Moreover, the increase in Gold reserves by central banks is also an important factor driving up Gold prices. Several economies, particularly countries like China and Russia, continue to increase their Gold reserves as part of a diversified forex reserve. This rise in demand from central banks directly pushes up the market price of Gold.

In 2024, Bitcoin experienced a significant rise, breaking through several key technical levels, primarily driven by a combination of several factors. First, Trump's election victory and his supportive policies for Cryptos provided new momentum to the market. During his campaign, Trump promised to include Bitcoin in the USA's strategic reserves and to provide more regulatory support for Cryptos, this anticipated policy has stimulated market demand for Bitcoin. Investors' recognition of Bitcoin as digital gold has further strengthened, viewing it as a safe-haven and a store of value in uncertain economic conditions.

Secondly, as global inflationary pressures gradually eased, market confidence in traditional currencies began to wane, prompting many investors to seek non-traditional assets as hedging tools. Bitcoin, as a decentralized digital asset, became an ideal choice. Its limited supply and decentralized characteristics have made it even more attractive to many investors, especially in the context of persistent long-term inflation expectations.

In addition, the launch of Bitcoin ETFs has also supported its price increase. The success of Bitcoin ETFs has attracted a large number of institutional investors to enter the market, and this influx of institutional funds has accelerated the rise in Bitcoin prices. In 2024, the asset scale of Bitcoin ETFs reached 82% of the U.S. Gold ETF within just ten months of launch, indicating that market confidence in Bitcoin is continuously strengthening.

Looking ahead, the market generally believes there is still room for safe-haven assets to rise. HTSC analysts believe that geopolitical conflicts and the debt issues of developed countries will continue to support the medium to long-term allocation value of Gold. Standard Chartered Bank forecasts that under the support of Trump’s policies, Bitcoin prices are expected to reach 0.2 million USD by the end of 2025. However, one must remain vigilant, as if risk appetite improves next year, major developed economies may reduce their Gold holdings in favor of buying Bitcoin, which could lead to a divergence in the performance of these two types of safe-haven assets. This shift in asset allocation could trigger a new round of market volatility, requiring investors to timely adjust their investment strategies to respond to market changes.

A-shares witness history, foreign capital is on a buying spree.

At the end of September, stimulated by a series of strong favorable policies in China, the A-shares surged, injecting strong confidence into the market. As market confidence restored, the entry of foreign funds also significantly increased, especially in key industries, where foreign capital accelerated its inflow, reaching a peak of 9 billion USD in a single week into the Chinese stock market, creating a new high and further driving up A-shares.

Looking to the future, foreign institutions generally hold an optimistic attitude towards Chinese assets. UBS, in its latest report, predicts that benefiting from domestic policy support, low base effects, and the return of retail funds, the Chinese stock market is expected to achieve considerable returns in 2025. Goldman Sachs anticipates that the MSCI Chinese Index and $CSI 300 Index (800122.HK)$will rise by 15% and 13% respectively in 2025. This shift in capital flows could lead to adjustments in the global asset pricing system, particularly in the fields of Technology, Consumer, and Advanced Manufacturing, where the valuation advantages of Chinese assets may further manifest, thereby impacting the valuation levels of related sectors in U.S. stocks.

The unwinding of yen arbitrage trading triggered a sharp decline in the stock market.

In early August 2024, as expectations of a narrowing interest rate differential between the USA and Japan rose, large-scale liquidation of yen carry trades occurred, triggering violent fluctuations in the global financial market. The exchange rate of the yen against the dollar quickly appreciated from 161.96 to below 145, hitting a nearly two-year high. This sudden appreciation of the funding currency severely damaged carry trade strategies, forcing many investors to close their positions. In just three weeks, the global stock market lost approximately 6.4 trillion dollars in market cap.$Nikkei 225 (.N225.JP)$The Index experienced its largest decline since 1987.

This storm triggered a chain reaction in the global capital markets. In the US stock market, both the S&P 500 Index and Nasdaq Index saw significant declines, with technology stocks bearing the brunt. As investors needed to sell high-yield assets to cover their yen positions, market liquidity sharply contracted. At the same time, the yen's safe-haven attributes further pushed up its exchange rate, creating a vicious cycle. High-yield currencies like the Australian Dollar suffered greatly, and emerging market assets also faced selling pressure.

At the December monetary policy meeting, looking ahead, the Bank of Japan released a dovish signal, while the Federal Reserve released a strong hawkish signal. In such a context, it may be difficult for the yen to return to the strong rebound seen in August, and it may also be temporarily hard to reignite carry trading waves in the market.

Editor/Rocky