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Abridged transcript - Damien's Market Update - December 2024
November's investment markets were a rollercoaster, heavily influenced by three major events: Donald Trump's unexpected return to the White House, Federal Reserve Chair Jerome Powell's hawkish stance, and a glimmer of hope in the Middle East.
Trump's victory, defying poll predictions, sparked a "Trump Trade 2.0". The uncertainty leading up to the election made pre-emptive portfolio positioning difficult for many investors. However, once Trump's win was announced, the market reacted dramatically as investors rushed to adjust their positions in line with the new political landscape.
Global markets reacted swiftly to Trump's unexpected victory. US stocks surged as investors piled into sectors anticipated to benefit from his policies. Notably, Tesla's share price saw a dramatic 38% increase, fueled by CEO Elon Musk's close relationship with the president-elect. The US dollar initially strengthened on prospects of increased fiscal spending and potential tax cuts, negatively impacting commodities and emerging markets. However, concerns surrounding Trump's proposed tariffs on major trading partners like Mexico, Canada, Europe, and China introduced market volatility.
Interestingly, a look back at Trump's first term suggests that Chinese equities could potentially perform well during his second term. While the US stock market initially rallied after the election, Federal Reserve Chair Jerome Powell's comments about persistent inflation and the lack of need for immediate rate cuts tempered some of the enthusiasm. Powell's remarks, also negatively impacted investors’ bond holdings.
In the UK, the Autumn Budget's emphasis on fiscal responsibility and tax increases led to a sell-off in UK equities, particularly in the FTSE 250, which dropped over 2% before recovering somewhat in late November. The market's expectation of a "higher for longer" interest rate environment further dampened investor sentiment. However, the FTSE 100 benefited from the strong US dollar compared to the pound. These events highlight that central bank policy can have a greater impact on markets than political developments.
As November drew to a close, a glimmer of hope emerged in the form of a ceasefire agreement in the Middle East. This development, coupled with positive US economic data, fostered a sense of optimism as we entered December.
Now that the US election is behind us, December's focus will likely shift back to central bank policy. The European Central Bank, US Federal Reserve, and Bank of England have interest rate decisions scheduled for the 12th, 18th, and 19th, respectively. Investors will be closely watching economic data from major economies for signs of persistent inflation and economic growth or uncertainty. Additionally, Trump's actions/tweets will likely add another layer of complexity to the market as will the developments in Syria in recent days. But investors will be starting to think about a potential Santa rally in stock markets.
Based on my past research on the Santa Rally phenomenon, the odds of a positive December this year are good. Last Christmas's performance bumped up the long-term frequency of a Santa rally on the S&P 500 to 73%, with an average December return of over 1%.
In the UK the FTSE 100 has historically shown an even stronger Santa rally trend, with an 83% frequency since 1994 and an average return of 1.81% after you factor in last year’s stunning rally. But what makes 2024 even more interesting is that US election years tend to be particularly favorable for Santa rallies, with both the S&P 500 and FTSE 100 showing strong positive returns in December following elections.
On 11 out 13 occasions (85% of the time) when there has been a US election we’ve seen a Santa rally in the S&P 500. More impressively since the FTSE 100 was launched in 1984 we have seen a Santa rally in every US election year since! That means that 2024 could be a particularly exciting year for the Santa rally phenomenon.
The UK's FTSE 100 has a strong history of Santa rallies, occurring 83% of the time since 1994 with an average return of 1.81%, including last year's impressive performance. What makes 2024 particularly interesting is the added boost from the US election year. The S&P 500 and FTSE 100 typically experience strong positive returns in December following elections.
Since the FTSE 100's launch in 1984, a Santa rally has occurred during every single US election year. This perfect track record, combined with the S&P 500's 85% success rate (11 out of 13 times), suggests that 2024 could be an especially exciting year for the Santa Rally.
