Market Update: A year of challenges and opportunities
2024 saw a year of significant changes, from global economic shifts and central bank policies to the geopolitical implications of the US elections. These developments have presented challenges and opportunities for investors worldwide.
Key themes of 2024
Q1: The battle continues
The year began with central banks around the world balancing two key challenges: managing inflation and supporting economic growth.
- The US Federal Reserve held interest rates high to combat stubborn inflation, and the Reserve Bank of New Zealand (RBNZ) maintained a similar stance. This led to cautious consumer and business sentiment.
- Optimism in equity markets initially spiked following a dovish tone from the Fed in late 2023, but it quickly faded as resilient US economic data lowered expectations of rate cuts.
- In New Zealand, inflation concerns persisted, and the RBNZ’s steady OCR rate of 5.5% since May 2023 impacted housing and broader economic activity.
Globally, geopolitical tensions, energy supply concerns, and trade disputes added to market volatility, underscoring the need for investors to remain vigilant.
Q2: Diverging economies
Global financial markets in Q2 reflected an uneven recovery across regions, creating a complex landscape for investors:
- US: Continued resilience, with the Federal Reserve delaying rate cuts as growth indicators pointed to a soft landing.
- Europe: The European Central Bank began cutting rates, signalling better inflation control.
- China: Despite reporting strong growth, concerns over housing and consumer spending raised questions about sustainability.
- New Zealand: Subdued growth persisted, with inflation and fiscal policy decisions adding uncertainty.
These diverging recoveries highlighted the importance of diversification. While US tech giants like Nvidia and Microsoft led market gains, reliance on concentrated sectors posed risks, prompting investors to explore opportunities globally.
Q3: Clarity amid uncertainty
Markets in Q3 experienced month-to-month fluctuations driven by shifting economic data and policy measures.
- Global growth slowed but remained positive, prompting central banks to take steps to stimulate activity, including rate cuts in some regions.
- Despite short-term volatility, medium-term returns remained encouraging for patient investors. For example, international equities rose by 2% in July (NZD unhedged-terms), though they dipped in August due to weak US jobs and manufacturing data.
New Zealand equities showed modest growth, while global bonds outperformed after the US Federal Reserve implemented a 50-basis-point rate cut. Commodities like oil and iron ore fell as global growth expectations dimmed, and the NZD saw a strong rebound.
Q4: Trump’s electoral victory and market implications
While Trump’s victory wasn’t unexpected, the scale of his win – combined with Republican control of both the Senate and the House – was a less anticipated outcome. This gives Trump a strong mandate and Congressional majority, positioning him to pursue significant legislative changes.
As we remain in the “lame duck” phase of Biden’s presidency, no major policy changes are expected before Trump’s inauguration in January. Once key appointments and confirmations are made, attention will turn to how much of Trump’s ambitious agenda he can implement and where his priorities will lie.
Economic and market reactions
- Equity markets initially responded positively, reflecting investor optimism that not all of Trump’s proposed policies – such as heavy tariffs, significant spending plans, and tax cuts – will be enacted in full.
- Yield curves have risen in anticipation of additional government debt to fund Trump’s plans, signalling potential inflationary pressures. While his policies are generally seen as pro-growth and market-friendly, protectionist measures like tariffs and trade barriers could create clear winners and losers across sectors.
- Markets remain focused on the appointment of key officials, whose influence will shape the direction of Trump’s policies. This uncertainty may drive volatility through 2025.
Geopolitical dynamics
Trump’s second term is expected to reflect his prior presidency:
- China: A continued aggressive stance is anticipated, though building allied support may limit the scale of tariffs and trade restrictions.
- Middle East: Trump is likely to maintain support for Israel and take a confrontational verbal stance toward Iran, while avoiding significant military involvement.
- Ukraine: A reduction in US support for Ukraine is possible, which could increase the likelihood of a ceasefire or reduced hostilities, though events remain unpredictable.
Trump’s isolationist tendencies and confrontational style may create tensions with both allies and rivals, potentially complicating the global geopolitical landscape.
Inflation and interest rates
Trump’s proposed tax cuts and spending initiatives could add to inflationary pressures and government debt. This may prompt the Federal Reserve to slow the pace of interest rate cuts as they work to balance inflation concerns.
Looking ahead, the markets will remain speculative until key policies are clarified in 2025.
Staying focused amid change
2024 has shown the importance of maintaining a diversified portfolio and staying committed to long-term goals despite short-term volatility. The team at NZBritannia is here to help you navigate these uncertain times and make informed decisions to safeguard your financial future.
If you’d like to discuss how these developments might affect your portfolio or explore any potential opportunities, please don’t hesitate to get in touch.
The information contained in this publication is intended for general guidance and information only. It has not been personally prepared for you. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult with us before making any investment decision. Historical market performance may not be indicative of future market performance.