No Santa rally for stocks
· Stocks failed to deliver a year-end rally, but most markets achieved solid growth in 2024.
· US Federal Reserve cut rates but provided weak guidance, pushing bond yields higher.
· UK economy grew 0.1% in November, but Q4 stagnation persisted.
· Michel Barnier resigned as France’s Prime Minister after his government collapsed.
· Denmark increased Greenland defense spending following US President-elect Trump’s renewed interest in purchasing it.
· China launched an anti-monopoly investigation into Nvidia.
· Bitcoin’s value exceeded $100,000 for the first time.
Markets wrapped up 2024 on a subdued note as equities failed to deliver the much-anticipated ‘Santa rally’ in December. A key development during the month was the Federal Reserve’s decision to lower US interest rates by 0.25%, but with a cautious tone. Fed Chair Jerome Powell signalled a more restrained approach to monetary easing in 2025, to the market’s disappointment. Powell cited a resilient labour market and slower-than-expected progress in reducing inflation as key factors behind this cautious outlook. Meanwhile, the outcome of the recent US election has been widely interpreted as adding upward pressure on inflation, further complicating the interest rate policy landscape.
December saw a further strengthening in the US dollar and higher bond yields. The yield on the 10-year UK government bond rose from 4.3% to 4.6%, driving bond prices lower and creating headwinds for fixed-income investors. Market expectations now project only two additional UK and US rate cuts in 2025, further highlighting the central bank’s cautious stance.
Equity markets broadly weakened over the month although the Nasdaq Index held up better than most helped by strength in large-cap technology stocks, often referred to as the “Magnificent Seven”. In contrast, the Dow Jones Industrial Average, with less exposure to these tech giants, endured a ten-day losing streak. The renewed concentration of returns in US large-cap tech stocks reversed the broadening trend observed earlier in the year. This highlighted the ongoing challenges for investors seeking diversification beyond a handful of dominant names.
European equities were broadly flat over the month, to end a disappointing year where they lagged other major investment markets. Economic weakness and limited exposure to AI has hindered European equities. Their issues have been compounded by political turmoil in key countries, particularly France. The public is frustrated, and there remains a growing budget crisis. Investors have driven up risk premiums on French assets over peers to levels not seen in more than a decade and sent stocks in France plunging. President Macron’s loosening grip on his agenda and Marine Le Pen’s ascent mark the apex of a long battle between two visions of France and the European Union.
For the country, it heralds a shift away from years of business-friendly policies that transformed its image, helping lure global finance to Paris after Brexit and bring in foreign money to spur an industrial revival. But those policies angered ordinary workers, who’ve steadily been won over by Le Pen’s promises to do more for them. Is this starting to sound familiar?
The uncertainty over France’s direction couldn’t come at a worse time for the EU, with the Russian army threatening its threadbare defences, its companies outgunned by the financial muscle of American and Chinese competitors, and the prospect of a hostile sanction focussed US president about to return to the White House.
Not one to be left out, during the month Sir Keir Starmer reiterated the key pledges that formed Labour's manifesto, but also gave new details about how he plans to get re-elected. Starmer set out his "plan for change" – explained as six "milestones" he wants the voting public to measure his government against at the next election.
The targets on housebuilding, NHS waiting lists, and school-readiness apply to England only.Recruiting more police is for England and Wales, while clean power and raising household income is UK-wide.
The Milestones are:• Putting more money in the pockets of working people (still not sure who this relates to)• Building 1.5m homes and fast-tracking planning decisions on at least 150 major infrastructure projects• Treating 92 percent of NHS patients within 18 weeks• Recruiting 13,000 more police officers, special constables and PCSOs in neighbourhood roles• Making sure three-quarters of five-year-olds are school-ready• 95% clean power by 2030
It is a little confusing when Sir Keir talks about what his government wants to do, comparing these new six “milestones” against the previous six "first steps" he set out in May, just before the general election was called.
The six milestones are ways to measure the five missions he set out in February 2023. The missions – like building an NHS fit for the future – are meant to be the driving purpose for the government. These are what civil servants have been ordered to prioritise. All of this is built upon three foundations - economic stability, secure borders and national security, according to Sir Keir.
As we conclude 2024, global markets offer plenty of potential in 2025. Further monetary easing, particularly by the Fed, remains a critical driver. As always there are risks, with the most immediate being new policies under President Trump’s administration, particularly on tariffs, which we believe could have a more significant impact than markets currently anticipate. Additionally, we are concerned that a marked deceleration in US government spending could weigh on economic growth. While challenges persist, including inflationary pressures and geopolitical risks, the resilience demonstrated by businesses and consumers this year provides a foundation for cautious optimism.
Comments