MARKET COMMENTARY – DECEMBER 2024

Global equity and fixed income markets saw diverging performances in November, influenced by shifting economic data, fiscal policies, and geopolitical developments. Optimism surrounding the US economic outlook, driven by strong corporate earnings and President Donald Trump’s pro-business policy agenda, contrasted with challenges in the UK and emerging markets, where fiscal pressures and currency headwinds weighed on performance. Commodities were volatile, with oil prices fluctuating amid global economic uncertainties and geopolitical pressures. cut

Developed market central banks continued to lower interest rates during November. The US Federal Reserve Bank cut  the federal funds rate to a target range of 4.50%-4.75% supported by progress on inflation and recent employment data. Concerns around Trump’s policy proposals reigniting inflation have reduced US interest rate cut expectations to only three cuts in 2025. The Bank of England cut its policy rate from 5.00% to 4.75% and lifted inflation projections for 2025 and 2026 following October’s UK Budget.

UK equities faced a complex backdrop, marked by fiscal and economic headwinds. Weaker sentiment in the retail and services sectors highlighted the impact of tax hikes and inflationary pressures. The strong performance of financials supported UK equities in November. The UK property market showed signs of strain however improved affordability and innovative lending solutions offered support for a potential recovery of the property sector.

US equities continued their strong rally and outperformed other regions significantly, with the S&P 500 and Dow Jones indices reaching record highs. Markets were buoyed by optimism surrounding Donald Trump’s presidential victory and the pro-business policy agenda, including promises of deregulation, fiscal expansion, and potential corporate tax cuts. The appointment of Scott Bessent as Treasury Secretary reinforced investor confidence, emphasising continuity in stable economic policies. Smaller companies and industrials, often seen as beneficiaries of Trump’s fiscal vision, performed particularly well. These gains were further supported by strong corporate earnings and signs of resilience in US economic data, including robust consumer spending and steady labour market performance.

Emerging markets underperformed due to a strong US dollar and persistent challenges in China’s property sector, with added concerns over a future trade conflict with the US and the assessment that the previously announced government support measures are not yet sufficient. Indian equities also faced volatility amid weak corporate earnings. Markets remain focused on potential fiscal measures from Beijing to stabilise economic growth, while the stronger dollar created headwinds for currencies and investments across emerging economies.

Fixed income markets reflected ongoing caution. Globally, bond yields rose slightly as expectations for moderate monetary easing held steady, though geopolitical tensions and fiscal vulnerabilities remained key risks. Currency movements in November were the largest contributor to global bond returns, reducing performance in USD terms and enhancing returns for EUR and GBP based investors. UK gilt prices faced downward pressure, resulting in higher yields, following the Budget announcements that highlighted increased borrowing. Investors monitored the Bank of England’s approach to interest rate adjustments amid concerns over wage growth and inflation forecasts.

As markets move into 2025, the economic landscape remains shaped by the interplay of fiscal policies, geopolitical risks, and macroeconomic conditions. The positive reaction around President Trump’s fiscal agenda could drive further US equity market gains. Investors are however also closely watching the US Federal Reserve Bank’s decisions, as resilience in economic data reinforces the case for a steady monetary approach.

While challenges persist in the Chinese and European economies, exacerbated by the potential trade war between the US and China and the recent collapse of the French Government, opportunities exist in sectors and regions demonstrating resilience and innovation. Technology and AI advancements, coupled with generally easing inflationary pressures, continue to offer growth potential in key industries.

Total returns in GBP to 30/11/2024

*October 2024

Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk

This commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.