US equity markets were boosted by the election results although enthusiasm was later tempered by the Fed’s hawkish rate cut in December.
The Nasdaq-100 index outperformed the S&P 500 in Q4, while Equal Weight indices underperformed following a strong Q3.
S&P 500 ETFs dominated flows in Q4, while demand for Financial sector ETFs surged on the back of expectations for Trump’s deregulation policies.
The fourth quarter was largely uneventful for the first month, with US equity markets flat in the run-up to the US elections. Markets then rallied strongly on the back of the resounding victory for Trump and the Republican Party in general. Trump’s “America First” agenda includes cutting taxes, reducing regulation, increasing energy production and making domestic businesses more competitive. Some of his policies are seen as potentially inflationary but the agenda is overall positive for US companies.
Enthusiasm was dented in December by the Fed’s hawkish rate cut. When announcing the largely anticipated 25 basis-point (bp) reduction, Chair Powell suggested the Fed would be taking a more cautious approach from there. The latest “dot plot” showed the committee members reduced by half the rate cuts they expect in 2025, with only 50 bps of cuts now forecast this year, and the same amount in 2026. Although the Fed still expects inflation to continue easing in 2025, Powell warned that it might be slightly higher by the end of the year than they had recently predicted.
The S&P 500 returned a respectable 2.4% in Q4, while the more tech-heavy Nasdaq-100 gained 4.9% in the quarter. After a strong Q3, the S&P 500 Equal Weight index recorded a -1.9% loss in Q4. Performances of the three benchmarks were broadly equal for the quarter until the end of November, after which the higher-growth Nasdaq began to outperform while the more balanced approach of the Equal Weight index suffered.
Source: Bloomberg and Invesco, net new assets to 31 December 2024.
Source: Bloomberg and Invesco, net new assets to 31 December 2024.
Most US equity categories saw positive flows in Q4, but ETFs tracking the standard S&P 500 index continued to dominate, with approximately US$30 billion of NNA, most of which came in after the election. So-called “Trump trades” were seen elsewhere, including flows into US small caps (US$4.5 billion of NNA) and financial sector ETFs (US$2 billion of NNA). Investors expect these companies to benefit from Trump’s policies on deregulation and promoting domestic competitiveness.
While it’s likely that US equity performance in the coming months will be driven largely by the enactment of the various Trump policies, most of these are already known and, as such, possibly already priced into the market. That said, the extent to which Trump will follow through on his campaign pledges remains a question, especially as it relates to trade tariffs, as well as secondary impacts that could affect the fortunes (negatively or positively) of US companies and the economy.
Interest rates could also have an effect on certain rate-sensitive segments. The Fed is likely to leave rates unchanged in the short term, during which time the committee will have additional data on inflation and employment. It will be worth monitoring consumer spending and confidence levels in the coming months.
We would expect the US equity market to remain well-supported in this environment and for the relative strength of the US dollar to benefit non-USD investors. Some of the companies that are expected to benefit from Trump policies include financials and those involved in security (physical and cyber), energy infrastructure, cryptocurrencies and AI.
Despite the volatility in bond markets throughout January, yields generally ended the month slightly lower, resulting in positive returns for most fixed income asset classes. Read our latest thoughts on how fixed income markets performed during the month and what we think you should be looking out for in the near term.
Satisfying climate-related goals without the resulting performance deviating too much from standard indices can be challenging. Learn how the EU Climate Transition Benchmark (CTB) offers a solid framework for ETF providers to customise solutions for investors’ needs.
India is one of the strongest growing economies in Asia, driven by digital transformation, robust consumption and expanding exports. Find out more.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security, or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
Data source Invesco/ Bloomberg as at 31 December 2024 unless otherwise stated.
Views and opinions are based on current market conditions and are subject to change.
EMEA4190451
