Stock markets continued to trade during the first part of December, still celebrating Donald Trump's return to power. However, they lost ground in the final weeks of the year, closing the month mixed, largely after the last Federal Reserve meeting.
Political unrest hits global markets
In the last month, South Korea was at the bottom, dropping more than 6%. The President's attempt to declare Martial Law (following an investigation into his family's shady dealings) has pushed the country into a full-blown political crisis, with the Parliament ultimately voting to impeach him. Canada also took some beatings after the US's position regarding tariffs and the impact of a more hawkish Federal Reserve. As for US markets, they closed slightly negative.
On the opposite side, China and Japan held on to the gains. The same is true for the Eurozone, despite France’s politics and outlook remaining a mess. Meanwhile, Germany's indicators and outlook continue to deteriorate, with the economy looking like it's heading for a second consecutive year of negative growth.
Debt markets react to Trump’s return
Trump's return has also had a massive impact on debt markets, pushing yields upwards. As previously mentioned, tariffs will increase the price of imported products. Immigration controls will reduce the availability of labour in the US economy at a time when unemployment is already low. Fewer taxes and higher wages will boost consumption. These policies point to increased inflation in the USA, pushing interest rates up.
As a result, interest rates on US debt are soaring. The 10-year rate is approaching 4.7%, a level it has not seen since last spring. Having wagered a large number of US key rate cuts in 2024, investors had to settle for a minimum service and a benchmark key rate still between 4.25% and 4.5% at the present time. They have, therefore, pushed their bearish expectations back to 2025.
The Fed is now cautious and may only lower its key rates once in 2025. Thus, the price of money in the US will remain expensive for a longer period, disappointing investors who were expecting a cheaper loan that would revive activity (economic growth). Looking ahead, this is one of the biggest challenges for 2025.
2024 closes strong, but there are challenges ahead
Overall, 2024 was a very positive year for stocks and bonds despite the turbulence this last month, with most markets ending with positive returns. Our primary strategy in a portfolio is moderately conservative, divided into 50% stocks and 50% bonds.