This week, we have a guest piece for you.
Quilter Cheviot Investment Manager Olly Smith has shared his analysis of Q4 and his thoughts on what 2025 might have in store for investment markets.
We strongly believe that the key to financial wellbeing is concentrating on purpose, i.e. What is the money for? What do you want to do, and how much will it cost?
We appreciate that investing is key to providing the opportunity for you to build wealth and retain the spending power of your existing wealth, enabling you to fulfil your future hopes, dreams and aspirations.
This blog post is the first of our regular quarterly investment updates from Olly. These will provide you with a broad overview of what’s going on in the world and how that impacts investments.
I hope you enjoy reading this piece, and feel free to share your thoughts with us and if you have any questions for us or the QC team, get in touch!
For investors, the final quarter of 2024 was dominated by news flow from the United States.
North American stock markets rallied in the weeks immediately prior to and after the presidential election result. A Trump victory, as well as the Republican sweep of both houses of Congress, fed expectations of a de-regulatory and tax-cutting agenda and saw US stocks rally alongside other risk assets like cryptocurrencies.
Stock market excitement in the US did not manage to cross the Atlantic, where Europe – perceived as being vulnerable to the president-elect’s predilection for tariffs due to its persistent trade surplus with America – saw its equity markets fall in the wake of the US election results.
The week before Christmas, however, saw Federal Reserve chairman Jay Powell deposit a lump of coal into the stock market’s stocking, dampening market euphoria by warning that there may be fewer interest rate cuts in the US in 2025 than markets were previously pricing for.
Given the inherent inflationary implications of Trump’s policies – tariffs and tax cuts – it is right for central banks to be cautious, and monetary policy is likely to remain a key driver of market returns until a convincing victory has been won in the last throes of the battle against persistent inflation.
Taking a slightly longer view, 2024 as a whole was a positive year for equity investors.
Stock markets globally continued the rally that began at the end of October 2023 after an inflation and interest rate-driven slump dating back to the invasion of Ukraine.
In a year of positive global equity market returns, the US comfortably outshone the rest of the world, returning over 20% for a second consecutive year due to its preponderance of exposure to the technology and artificial intelligence themes that have primarily driven markets higher, as well as rates of GDP growth which are the envy of its developed market peers.
Even the dowdy UK stock market, with its dearth of world-beating technology names, posted a positive total return and, in fact, outperformed an index of continental European equities.
Away from stock markets, bonds endured another difficult year.
UK gilts sold off in the final quarter of the year in the wake of the first Labour budget in 14 years, wiping out their returns over the first nine months of the year.
Corporate debt has performed better than sovereign debt although credit spreads – the difference between the yield on a corporate bond and that of an equivalent piece of governmental debt – look very tight. Bond yields overall remain attractive, particularly in the face of declining interest rates likely to reduce the appeal of cash.
In terms of a forward-looking outlook for 2025, Donald Trump’s return to the White House will leave investors once again at the mercy of his social media posts. The good news for investors is that his first term was marked by the president-elect’s ongoing use of the US stock market as a measure of his success.
Monetary policy, however, will likely continue to be the key driver of sentiment as markets look for central banks to conclusively win the ‘last mile’ of their battle against persistent inflation and bring it back down to their 2% targets.
The US stock market now constitutes around 70% of global equities by market capitalisation, so it remains to be seen if the valuation gap between it and the rest of the world can be narrowed.
Economic weakness in China has persisted despite some attempts at stimulus – markets are likely anticipating far larger levels of government support than have currently been attempted and the likely return of Sino-American tensions playing out in public under the second Trump administration may focus minds in Beijing to this task.
Finally, bond markets have yet to stage a proper recovery from the sell off of 2022 and 2023 but continued gradual interest rate cuts may provide an opportunity to lock in attractive yields while investors still can.
Whilst the US stock market has hogged the headlines over the last year, there remains plenty of opportunity for investors both within and outside of US stock market hegemony.
Investors should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future returns. You may not recover what you invest.
This document is not intended to constitute financial advice; investments referred to may not be suitable for all recipients. Any mention of a specific security should not be interpreted as a solicitation to buy or sell a security.
Quilter Cheviot and Quilter Cheviot Investment Management are trading names of Quilter Cheviot Limited. Quilter Cheviot Limited is registered in England and Wales with number 01923571, registered office at Senator House, 85 Queen Victoria Street, London, EC4V 4AB.
Quilter Cheviot Limited is a member of the London Stock Exchange and authorised and regulated by the UK Financial Conduct Authority and as an approved Financial Services Provider by the Financial Sector Conduct Authority in South Africa.
