Merry Market Matters!
Author: Tom McGrath CIO, 8AM Global
Market Review
With only a day or so to go before Christmas, I didn’t think it appropriate to swamp our readers with a deluge of economic updates and market opinions that you (hopefully) won’t have time to read. If I had, it would have been another l-e-n-g-t-h-y edition of Market Matters as a lot was happening last week…
However, here’s a summary of the big headlines for the US and UK to enable you to succinctly answer any client questions that may pop up between now and 2025!
US
Equity and bond markets were down sharply last week, as investors didn’t like the Fed update that accompanied the quarter-point rate cut, unlike the mighty dollar, which made gains across the board. In a nutshell, inflation is proving a bit stickier, and there might not be as many rate cuts next year as they had previously communicated – ‘Quel Surprise’ for us and our regular readers – the 8AM AQ portfolios being positioned over the past months based on this as the most likely statistical outcome.
A Q3 GDP upward revision to 3.1% underpinned the strength of the US economy, as did strong retail sales figures. So, there was a genuine fear that we might get a ‘hotter’ PCE inflation print on Friday, but thankfully, we didn’t. The monthly increase in core was just 0.1%, annualising at 2.8%, which was lower than expected, and both equities and bonds breathed a sigh of relief and rallied in to close. Amidst the high drama and just as the public sector faced a complete shutdown, the Senate passed funding to keep the US operating until mid-March late on Friday night!
UK
We got higher inflation numbers than expected, with CPI inflation now rising again and up to 2.6% for November, which left the BoE on Thursday with no option but to keep rates stable, although a few of the committee still wanted a cut. The data comes not long after a poor UK GDP number and news that government borrowing is now likely to overshoot official forecasts, raising the spectre of stagflation just as the cost of financing the debt goes up in line with gilt yields. That’s a big ouch for the new government.
As you would expect, it was also a tough week for other global equities, with Emerging Markets, in part, feeling the pain of dollar appreciation and the prospect of higher debt funding costs going forward.
But as I sign off for Christmas, the absence of a Santa Rally this year, for me at least, has been a very welcome and fitting Christmas gift! I was getting increasingly worried we were getting into dangerous ‘melt-up’ territory, and I feel better that a bit of froth has been blown off the markets. This leaves us in a better place to see decent gains from equity markets next year, and bonds are also back to ‘fair’ value. I remain convinced we are still relatively early into a healthy long-term bull market, fuelled by economic growth and productivity gains.
On behalf of the whole team at 8AM Global, I would like to
wish you a very Merry Christmas and a happy, prosperous 2025!
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