Markets – December 2024
The ‘Trump Bump’ provided solid returns for the month
In what is becoming known as the ‘Trump Bump’, share markets rallied strongly following the outcome of the US election.
‘Trump Bump’ refers to a significant increase in stock market and investor optimism that typically follows Trump’s electoral victories. This phenomenon was observed during both his 2016 and 2024 presidential elections, when markets reacted positively to his proposed economic policies, including tax cuts, deregulation, and a pro-business stance.
2024-2025
The positive shift in sentiment diminished the market volatility seen in the lead up to the election. This clarity allowed for a robust post-election rally across various sectors.
All three major U.S. stock indices achieved record highs shortly after the election results were announced.
The Dow Jones Industrial Average finished the month up 7.5%, while the S&P 500 and Nasdaq rose by 5.7% and 6.2% respectively. The Australian main index, the ASX200, returned a more modest 3.4%.
Even so, oil prices fell sharply on 6 November – the day after Trump’s election win. Brent crude dropped by 1.4% to US$74.49 per barrel, while West Texas Intermediate (WTI) also saw a similar decline.
By 12 November, crude oil prices had fallen further, by about 4.8% to around US$68.40 per barrel. The decline was linked to Trump’s vocal support for expanding U.S. drilling capabilities, which raised fears of oversupply in the market.
Trump’s strong views on crypto and his connections to many crypto entrepreneurs saw Bitcoin rally to over US$100k per coin.
Traditional Santa rally brought forward
December is traditionally a solid month for stock markets and is often characterised by the ‘Santa Claus rally’, when investors tend to buy, which leads to price increases.
Historically, December has recorded positive returns about 70% of the time, with an average gain of around 3.0%.
As of mid-December, major indices have experienced fluctuations. The ASX200 index and the Dow Jones Industrial Average have both fallen by 1.1%. The tech-heavy Nasdaq is up 2.4%.
Current market conditions reflect a mix of optimism and caution amid fluctuating stock prices and economic uncertainties. Investors are therefore closely monitoring upcoming economic data that could influence market directions as the year concludes.
Key projections for 2025
Economic Growth Forecasts
United States: The U.S. economy is expected to grow modestly, at around 2.0%. This growth is characterised as a ‘soft landing’, influenced by tight monetary policy and potential fiscal changes under the new administration.
Eurozone: Growth in the Eurozone is projected to be even slower, at approximately 0.9%, as it grapples with trade policy uncertainties and inflationary pressures.
China: China’s growth is anticipated at about 4.2%, which is below historical averages, reflecting ongoing challenges in its property market and external trade relations.
Australia: Australia’s economic outlook for 2025 suggests a gradual improvement in growth, although it will remain below the long-term trend. Forecasts indicate GDP growth will slowly improve, with estimates ranging from 1.7% to 2.6% by the end of 2025. The Reserve Bank of Australia (RBA) projects GDP growth at 2.6% for mid-2025 and slightly lower at 2.5% by the end of the year.
Market Sentiment and Stock Projections
Analysts predict that US share markets could rise by about 10%, with expectations ranging between 5% and 15% based on current valuations. This follows two years of strong market performance, suggesting a more normalised year ahead.
The expectation for share market returns in Australia for 2025 is generally positive but tempered by potential volatility and economic challenges.
Morgan Stanley forecasts the S&P/ASX 200 Index will reach 8,800 points by the end of 2025, driven by improved corporate profits and a resurgence in the mining sector.
They anticipate a 10% earnings growth for ASX companies, suggesting an ongoing favourable environment for equities.
AMP’s Chief Economist, Shane Oliver, predicts a return of around 7% for Australian shares in 2025. While there is potential for growth, he warns of likely market volatility during the year due to stretched valuations and geopolitical uncertainties.
Overall, 2025 is expected to be favourable for risk assets, with moderate growth and easing inflation, which supports elevated valuations.
Key Themes Influencing Markets
- Policy Changes: The incoming U.S. administration’s fiscal, trade, and immigration policies will be crucial in shaping economic outcomes and market dynamics.
- Geopolitical Factors: Ongoing geopolitical tensions (Ukraine and Middle East) and trade policy shifts could introduce additional uncertainty into the markets.
- Sector Opportunities: Analysts see potential in small caps and specific sectors that may benefit from deregulation and improving earnings forecasts.
In summary, while 2025 presents some growth opportunities across various markets, it also comes with significant uncertainties stemming from geopolitical factors, inflation concerns, and evolving fiscal policies. Investors need to remain vigilant and adaptable to these changing conditions.
Please don’t hesitate to contact me should you have any questions.
Kauri Wealth Management is a Fee for Service investment advisory business and as such my advice is built around ongoing personal relationships with my client base. Personalised independent advice is backed up by a breadth of industry knowledge.
I accept a limited number of new clients each year and would be happy to discuss this further with you. Please don’t hesitate to contact me.
Russell Lees
Senior Adviser
Phone: +61 439 852 963
Email: russell@kauriwealth.com.au
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