The latest insights from UBS Wealth Management's Chief Investment Office (CIO) have painted a vivid picture of the financial landscape as we approach 2025. The reflections on the global equity markets, the performance of gold, and the outlook for macroeconomic conditions serve to highlight both the challenges and opportunities that lie ahead.

UBS reported a remarkable 20.7% overall return for global stock markets in 2024, with the S&P 500 leading this charge with an impressive 23% returnThis marks the second consecutive year where the index has surged over 20%, demonstrating its strength particularly amidst significant fluctuations in the broader marketNotably, the performance of large-cap stocks in the U.Sstands out, characterized as one of the best two-year spans we have seen this centuryThe S&P 500 also experienced a positive trend, completing its fifth consecutive quarter of gains, reaffirming the resilience of U.S

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markets.

Meanwhile, China experienced its own revivalFor the first time since 2020, the Chinese stock market reported an annual positive return, with the MSCI China Index nearing a 20% returnThe recovery can be attributed to a series of government measures aimed at stabilizing the economy, restoring confidence in the market, and leading to improved expectations for corporate profitabilityThis influx of domestic and international capital into the Chinese market signals a renewed interest and optimism among investors.

Japan's equity market also thrived amid positive sentiment, driven by both corporate profitability growth and supportive government policiesIn contrast, European markets lagged slightly behind their global counterparts, yet still managed to secure positive returns, aided by a slow but steady economic recovery across the region.

Gold emerged as a standout asset in 2024, achieving a remarkable 27.8% return

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A significant driver of this rally was the robust buying by central banks, which aimed to diversify their foreign exchange reserves and enhance financial stabilityThe prevailing geopolitical tensions further spurred investors to seek safe-haven assets, with gold traditionally regarded as a reliable store of valueAdditionally, with a downward trend in U.Sinterest rates, the opportunity cost of holding non-yielding assets like gold decreased significantly, propelling prices higher.

However, not all fixed-income market performance was positiveThe U.Switnessed a continuous ascent in the 10-year Treasury bond yields for four consecutive years—a situation unseen since the 1980sThe unexpectedly strong growth of the U.SGDP indicated that the economy demonstrated significant resilience, somewhat dampening expectations of rate cutsAs a consequence, the Bloomberg U.STreasury Index reported a mere 0.6% return, while the Bloomberg Euro Government Bond Index fared better with a return of 2.7%. Investment-grade bonds yielded modest returns of 2% in U.S

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dollars and 4.7% in euros, exhibiting a relatively steady performance.

Looking ahead to 2025, the dynamics could shift notably based on the signals received from the December Federal Reserve meeting, which conveyed a hawkish tone regarding future monetary policiesMarket expectations for easing measures from the Fed were significantly revised down, with senior officials projecting only a 50 basis point reduction in rates this year—merely half of what analysts previously anticipatedThis pivotal change retains far-reaching implications for the fixed income, foreign exchange, and commodity markets.

For fixed-income investors, high-rated and investment-grade bonds, alongside diversified fixed-income and equity income strategies, will hold undeniable value in their portfoliosWhile expectations for significant rate decreases in the U.Sor Switzerland diminished, the intrinsic attractiveness of absolute yields in fixed-income assets remains

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As the economic landscape remains unpredictable, it is imperative for investors to diversify their sources of income, particularly as unexpected weaknesses in economic indicators could lead to sharp declines in cash ratesThe strategy to deploy capital for lasting returns continues to be at the forefront of investors' priorities, even if the immediate focus has shifted away from rate cuts.

In the foreign exchange realm, recent adjustments in expectations surrounding U.SFederal Reserve policies have lent some support to the dollarNonetheless, the issue of overvaluation looms over the currency, suggesting that a significant decline may not materialize in the short termThe dollar's prestigious position as a dominant reserve currency and its critical role in the global economy bolster its standing, ensuring that it retains considerable importance.

In the commodities sector, a scenario where the Federal Reserve only implements two rate cuts in 2025 could temper demand for gold ETFs, contradicting projections for further price surges