The big headlines: Quarter 4 2024

In this regular piece, we summarise the key headlines from the previous quarter and highlight any short-term impact they’ve had on investment performance.

Feel free to download and share it directly with your clients or read our interpretation below for further commentary.

Trump Returns to the Top – 5th November

There can be no doubting that November’s US Presidential Election was the dominant story of the final quarter, if not the year. Following a thumping victory in these elections, on January 20th Donald Trump’s historic comeback will be complete when he’s inaugurated as the US 48th President. Perhaps not since the reprisal of Jonny Lawrence has the US public born witness to such an astonishing return to a role of such immense responsibility. Markets will not wait until the inauguration to show their hand, however, reacting in advance to the anticipated mix of policies.

Though political forecasting is fraught with error, markets have keenly latched on to hopes of fiscal stimulus, foreseeing a helpful mix of income and corporation tax cuts. Such growth enthusing policies have bolstered investor sentiment, carrying US equities to new highs in December. The sting in the tail, however, is that such policy choices, if coupled with immigration curbs and additional trade friction, could be equally impactful upon inflation. Inflation, has been the death knell of incumbent governments in recent years, as it was for the Biden administration, so Trump and his team will be alert to its threat. Markets, to a degree, can also be self-regulating, meaning should bond markets start to revolt at an increasingly inflationary agenda, then Trump and his team may feel compelled to moderate their approach.

Rest assured (just as with the imminent “C.K.” season finale) this is a story we will be following very closely; indeed, one could well expect Trump to take up residence both in the Whitehouse and this quarterly publication in 2025.

Budgeting for (some) Growth – 30th October

At the end of October, the new Labour government delivered its first Budget in 14 years, setting the tone for its policy agenda over the remainder of its administration. Strategists from all vocations anticipated something big, but even then, many were caught off guard by the scale of its ambition.

Sadly, despite its size, suggestions this budget would create a platform for investment and growth were not endorsed by the Office for Budget Responsibility, nor any other leading economic institution. Growth is set to enjoy a bump in 2025 as additional spending, fading inflation and a generally healthy consumer support activity, however, as tax rises (most starkly for employers of low earners) begin to bite, and are eventually passed on to both employees and consumers, so growth is expected to falter, before stabilising at a rather pedestrian level.

Of course, there are many variables which may deliver both upside and downside adjustments to these forecasts, however, as investors, we should not lose sight of stock market valuations which heavily incorporate the uncertain and broadly downbeat outlook for the UK economy. Investors should also be alert to the global nature of many of the UK stock market’s dominant constituents. Cutting across commodities, healthcare, consumer brands, and financials, there reside plenty of interesting investment opportunities within our domestic bourse, with an eye-catching level of income on offer too.

Central Bankers Move to Shallow End – 17th December

Based on the impressive resilience of economic performance, along with more stubborn inflationary prints, communications inform the first cut could very well be the deepest for the US Federal Reserve. Having initiated its interest rate cutting cycle with a 50-basis point reduction in September, over the course of the final quarter, we saw two subsequent 25-basis point reductions.

In terms of market pricing (at the time of writing) expectations are for just one or two 25-basis point cuts across the whole of 2025. Similar dynamics are playing out here in the UK with a near identical level of interest rate cuts anticipated in the coming 12 months. A similar pattern is observable in Europe too, though a higher number of rate cuts are expected given the more pernicious growth challenges observed on the continent.

So far stock markets have (largely) been able to deal with this more ‘hawkish’ setting as growth (particularly from a dominant US economy) has remained resilient. Should inflation suffer a more meaningful resurgence, however, perhaps stoked by stimulative fiscal policy, the US Federal Reserve will likely declare a renewed assault on tackling it i.e. by raising interest rates. Such an environment could prove a far more difficult backdrop for stock markets – we are watching inflation closely!

Sacre Bleu - France Political Upheaval – 4th December

Ever since President Macron called snap legislative Elections in June, France has been drawn into a seemingly never-ending state of political turmoil. Matters deteriorated yet further in December, when a weak Minority government attempted to circumvent parliament and force through a (relatively) austere budget. A swift no confidence vote put paid to this plan, just as it did to the Prime Minister, Michel Barnier. At just 90 days, Barnier became the shortest serving Prime Minister in France’s Fifth Republic, though did manage to extend his term an impressive 41 days beyond our very own Liz Truss.

Soon after Barnier’s demise, and to Macron’s further embarrassment, the President was compelled to appoint a new centre-right Prime Minister, who intends to pass a budget with fewer spending cuts and a reduced tax take. Such a mix would likely be met with less resistance from the balance of power within parliament, though the bond market may be a little more circumspect.

The situation remains highly complex and fluid, with twists and turns sure to come either from political infighting or capital market revolt. Such troubles are nothing new to Europe (c’est la vie!), however, such drama does little to win favour with a despondent investor community.