- 21st January 2025
- Posted by: Dean Hall
- Categories: Market Commentary, Newsletters
Happy New Year!
2024 was quite a year for the markets overall, and we have seen strong calendar-year returns that have beaten bank rates and inflation.
Dare I say it was a more “normal” year than what we have seen for some time.
With new political leadership about to take over in the US, how and what this looks like remains to be seen.
This time of the year, we always have the financial gurus telling us what or how things will look over the next 12 months.
The one thing I can say for certain is that they will all be wide of the mark.
That said, I expect to see an increase in short-term inflation, with energy costs rising and wage increases pushing this higher.
We are seeing comments that the Bank of England base rate will be 3.75% this time next year, down from its current 4.75%. There are eight meetings this year, so that’s a 0.25% cut at every other meeting.
That’s hard to see overall, but with the UK stuttering in growth, the Bank of England might have to accept that inflation will not be 2% for some time and will be harder to control.
See the comments below for the quarter, and as always, feel free to get in touch if you have any questions or want us to assist in any way.
The Quarter in Summary
Looking back at Q4, we’ve seen a mixed bag of market movements across the globe. The US markets thrived post-election, while the Eurozone struggled with political uncertainty. Emerging markets had a bumpy ride, and commodities were all over the place too.
US Markets
US shares had a cracking Q4, finishing the year strong. Donald Trump’s re-election (and the Republicans snagging Congress) boosted optimism around growth, tax cuts, and lighter regulations. Tech and communication sectors were the stars, while materials lagged.
On the economic front, the Fed cut rates twice but scaled back on 2025 cuts due to sticky inflation (core PCE inflation hit 2.8% in November). The economy held steady with 3.1% GDP growth in Q3, and job numbers were a bit wobbly thanks to strikes and hurricanes.
Eurozone
Things weren’t as rosy in the Eurozone. Political drama in Germany and France, plus trade war fears, dragged shares down. Materials, real estate, and consumer staples took a hit, while industrials eked out gains.
The ECB cut rates twice, and more cuts seem to be on the horizon. Germany’s coalition government fell apart, paving the way for elections in February 2025. Meanwhile, France had its own chaos, with a no-confidence vote booting the PM.
UK
UK shares dipped, weighed down by worries over the economy and rising bond yields. Sectors tied to domestic spending took a hit, and growth numbers were underwhelming. The government’s Autumn Budget, with its new taxes and wage hikes, didn’t help sentiment either.
On top of that, hiring data hinted at a slower jobs market, and the economy shrank in October for the second month running. Internationally focused sectors struggled too, with softer global trends dragging them down.
Japan
Japan bucked the trend with a solid Q4, as the TOPIX index gained 5.4%. A weaker yen gave exporters a boost, and big names in autos made strategic moves, like share buybacks and plans to improve returns.
While the Bank of Japan stayed cautious, market sentiment was optimistic about wage growth and stronger consumption in 2025. Banks had a particularly good run, finishing the quarter as the top-performing sector.
Emerging Markets
It was a tough quarter for emerging markets, thanks to Trump’s election win and tariff concerns. Brazil and South Korea were hit hardest, while Taiwan and the UAE were rare bright spots. China struggled too, as uncertainty around trade policy weighed on sentiment, despite stimulus efforts.
Asia (ex-Japan)
Asia ex-Japan markets felt the pressure too. China and Hong Kong saw sharp declines, while Singapore and Taiwan came out on top. Investors looked to Singapore for its political stability as tensions between the US and China intensified.
Bonds & Commodities
Bond markets saw plenty of ups and downs, with inflation and political uncertainties playing key roles. US Treasuries sold off, and yields rose as rate cut expectations eased. In the UK, gilts faced similar challenges, while European bonds felt the heat of political instability.
Commodities had a mixed quarter. Energy and livestock led the way, while industrial metals and precious metals struggled. Within energy, everything rallied, but metals like nickel and copper saw steep declines.
Summary
To sum it all up, Q4 saw the US leading the charge with a strong finish, while the Eurozone and UK had a tougher time navigating political and economic headwinds. Japan and parts of Asia managed to post gains, but emerging markets struggled overall. Bonds and commodities experienced their share of volatility. It’s been a whirlwind quarter, with plenty to unpack heading into 2025!