Plenty to focus on as the New Year starts

The year-end Santa Rally fizzled out. Indeed, the All World Country Index fell just over 2% in December, dragging the index lower in the fourth quarter overall. That’s quite a surprise considering the optimism in the US for Trump’s re-election. It probably reflects the fears the rest of the world has regarding what Trump’s tariff policy could have on the US economy at the expense of the rest of the global economy.

Overall, there is no doubt that the optimism that greeted the start of 2024 is continuing into 2025. A combination of a further fall in interest rates, inflation coming back to central bank targets and the AI revolution, all of which supported the rally in 2024, will continue to do so into 2025.

Trump 2 has raised hopes that less regulation and a supportive fiscal policy will continue to drive the US economy forward. This optimism has muddied the waters for the Fed as they balance bringing interest rates back to what they call” neutral,” a point where monetary policy is neither stimulating nor hindering economic growth. Although, if the AAII retail investor survey is anything to go by, the weak end to the year has somewhat tempered that optimism.

The UK remains unloved by investors, and to be fair, it is not hard to see why—a list of companies that appear unexciting in a world of tech growth dominate the FTSE 100. It is also hard to see the appeal of sterling at the moment; in my mind, I would not be surprised to see the pound back to 1-1 against the USD at some point in the future. Europe is under the cosh, with political uncertainty and Trump tariff caution. All this forces investors to look back to the land of opportunity as being the place of investment opportunity. Buy expensive, exciting US stocks or boring, cheap European ones. Maybe a period on the sidelines owing a few short-dated government fixed-income securities whilst the dust settles a little is not the worst idea in the world.

Some believe the first week few days of the year reflect the year overall, never seen any real evidence to support or undermine this theory. For those that subscribe to this view, the last five days of trading have seen a minor correction in the S&P 500. The early economic data out of the US has been a mixed bag; manufacturing continues to look weak. There was good news from China as the Caixin China General Services PMI increased to 52.2 in December 2024 from 51.5 in November, surpassing market forecasts of 51.7. Later today, in the US, we got the monthly S&P composite PMI survey results. A raft of economic data from the world’s largest economy is consistently coming out this week, including last month’s Fed meeting minutes. There’s plenty to focus on as money managers return to their desks from the Christmas break. Happy New Year everyone.