Market Update – December 2024
December has been a quieter month in the global stock market. The FTSE 100 has been relatively stable in the UK, whilst the US stock market has climbed due to greater optimism from the presidential election. In Japan, the Nikkei 225 has picked up following months of instability, whilst China has indicated it will do more to support growth in anticipation of a potential trade war with the US in 2025.
UK policy
It has been a rough few months for the Labour government. Around 50% of Britons say they are “disappointed” with its performance so far, with only 1-in-5 saying they are “pleased.”
This decline has prompted Prime Minister Starmer to announce a government “reset”, with six new milestones introduced. These include raising living standards (rather than focusing on the more abstract notion of “growth”) and building 1.5m new homes in England.
These milestones have naturally been met with scepticism from many in the media. Even Labour pundits have expressed doubt about the government’s ability to pick and meet priorities.
Housebuilding is a case in point. Rewriting the rules about building on low-quality green belt land could help the government meet its 1.5m target for this parliament.
However, without major planning reform, the political realities that have beguiled previous governments are likely also to hamper this one.
The UK economy
Sterling (GBP) lost ground against the dollar (USD) as new data revealed slowing retail sales and lower productivity amongst UK businesses.
The October budget (Autumn Statement) has also played its part – seen by many in the market as stagflationary, leading to rising rates across the economy despite the Bank of England (BoE) base rate cut on 6 November to 4.75%.
Looking ahead, many in the markets are not expecting a further base rate cut until next February. Headline inflation rose year-on-year (YoY) in October to 2.3%, pushing living costs to their highest in six months. Core CPI (excluding energy, food, alcohol, and tobacco) rose by 3.3% in the same period, while services CPI also rose by 5.0% YoY.
These figures will likely cast doubt on a sustainable return to the 2% inflation aim anytime soon. Ordinarily, this might strengthen GBP. However, the BoE’s relative hawkishness is arriving at a time of stumbling economic growth.
The UK is now on “recession watch” after real monthly GDP fell by 0.1%, despite widespread expectations that growth would return after September’s fall. Pubs, restaurants and retail have reported particularly “weak months.”
The UK market
The FTSE 100 has been relatively stable in December. However, the arrival of economic data showing recession risks led to a drop to 8,288 on 13 December.
A string of mining companies have headed the recent fallers. The AIM All-Share index also fell. However, some confidence returned to the UK market later in the month.
Currently, the UK’s leading indices – the FTSE 100 and 250 – are being circled by a high number of bidders, marking the end of a year in which takeovers have soared.
Five FTSE 100 companies received bids in 2024, and 19 stocks within the FTSE 250. With the average deal value three times higher than the previous year (over £1bn), many are signalling that the UK market is “on sale.”
The Mergers and acquisitions (M&As) have resulted in 45 delistings from the UK market this year, leading to the fastest shrinking in the stock market for a decade. Greater pressure will now almost certainly arrive on the Chancellor to try and revive the City.
The Global Outlook
The US stock market has enjoyed a strong end to 2024, with the Dow Jones rising by 7.5% in November (its best month of the year) – but tailing off in December.
The S&P also rallied 5.7% in November, driven largely by Trump-affiliated stocks like Tesla (Elon Musk was heavily involved in the Republican presidential campaign).
Other notable risers included Goldman Sachs and Salesforce, which saw their prices rise by 17.5% and 13%, respectively. Financial services enjoyed a particularly positive fourth quarter.
Simultaneously, the yield on 10-year Treasurys fell from 4.24% to 4.18%, signalling investors’ widespread expectations about the future of US interest rates.
In Europe, markets saw a fairly positive end to 2024, with the pan-European Stoxx 600 rising from 504 on 27 November to 521.22 on 9 December. Banking stocks and household goods have been notable contributors.
In the Asia-Pacific region, markets have been sending mixed signals with their trading. South Korea surprised the world on 3 December when its president, Yoon Suk Yeol, attempted to impose martial law. Although the attempt was thwarted, the nation still faces political uncertainty and growth concerns.
Japan’s stock market appears to have benefitted from US market growth as its chip-related shares (boosted by American peers) rose on 16 December. However, market players are still eagerly awaiting monetary decisions by the Bank of Japan.
Asian stock markets have recently been challenged by surging bond yields and weak economic data. In China, retail sales showed a mere 3% rise in November, falling below the 4.6% forecast and highlighting the need for further economic stimulus.
As Donald Trump takes office as US President in January, questions hang over China’s growth (currently forecasted at 5%). The threat of further tariffs on US imports – if carried out – is likely to hit goods that China supplies – e.g. electronics, machinery, autos and chemicals.
