How the Stock Market’s Santa Rally Derailed, After Trump Gave an Early Boost

Stock market investors have been denied the so-called Santa Rally in the latter stages of 2024, having endured another year dominated by geopolitical turmoil and macroeconomic headwinds.

Top tech stocks have been among the few companies to advance in December, reflecting a year in which artificial intelligence has proven to be a dominant theme in the market.

Investors have become more bearish over the past month, as fears about global growth have gripped the UK, US, Europe and China.

The U.S. Federal Reserve last week helped spark the worst week for stock markets since early September, when the Fed took a more aggressive tone on interest rates despite cutting them for the third consecutive meeting.

Markets now expect just two Fed interest rate cuts next year, as opposed to the four cuts anticipated at the central bank’s September meeting.

U.S. markets plunged in response, after being propelled higher the previous month, as Donald Trump’s election to a second term as president raised hopes of a more accommodative business environment.

Rory McPherson, chief investment officer at Magnus FDM, said: ‘The Federal Reserve took on the role of stock market grinch last week! While they delivered on a long-awaited interest rate cut (bringing their rate cuts to a total of 1 percent this year), there was a cautious tone to their outlook that weighed on stocks and bonds.

He added: ‘The more cautious tone from the US Federal Reserve set the tone for the market last week, but it is worth noting that US economic data (which, along with US growth earnings, have fueled this bull market) were very strong.

‘US third quarter GDP growth data was revised up to 3.1 percent (from 2.8 percent), and personal consumption (which drives US growth) ) was revised upward to 3.7 percent (from 3.6 percent).

“In addition, U.S. core personal consumption spending (the Federal Reserve’s preferred measure of inflation) came in below expectations at an annual rate of 2.8 percent.”

How the main markets have behaved

As a result, the S&P 500 and the Dow Jones are down 0.9 and 4.2 percent respectively over the past month, while the dominance of global tech giants has helped the Nasdaq gain 2.7 percent. in the month.

The Nasdaq has soared 33 percent since the beginning of the year, while the S&P 500 and the Dow Jones have added 25 and 23.6 percent, respectively.

U.S. markets have generally outperformed global peers this year as the U.S. consumer continues to drive the economy.

By contrast, the FTSE 100 and FTSE 250 have fallen 2.3 and 1.6 per cent over the past month, capping 2024 gains at a dull 2.3 and 1.6 per cent respectively.

As in the United States, expectations about the scale and pace of the Bank of England’s interest rate cut cycle have also receded sharply amid persistent inflationary pressures. Markets currently expect two or three cuts next year.

However, unlike the United States, the UK’s economic data has gone from bad to worse in recent months.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “There is not much joy about the UK’s economic outlook, with the latest ONS assessment painting a picture of stagnation.

“The long period of speculation leading up to the Rachael Reeves announcements is unlikely to have helped, given that the rumor mill was in overdrive.”

Similar growth problems have also affected the eurozone: the Stoxx Europe 600 has added only 5.2 percent for the year.

Meanwhile, waves of stimulus from the Chinese government have helped calm markets, while unrest in the country’s all-important real estate sector has sent shockwaves through the economy.

China’s CSI 300 index has risen 2.2 percent over the past month, taking gains in 2024 to 16.16 percent, after officials said Beijing would “implement more proactive fiscal policies and moderately loose monetary policies.” “.

Justin Thomson, head of international equities at T. Rowe Price, said: “The world will probably have to get used to a structural slowdown in China from the 5 to 6 percent growth rates seen in recent decades.

‘A new challenge to Chinese growth may arise if Trump follows through on his promise to impose more tariffs on China.

“Meanwhile, the combination of compressed valuations, bottom-up innovation and the potential for strong countertrend rallies means that opportunities to invest in China will continue to emerge.”