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Your guide to what the 2024 US election means for Washington and the world
The rollercoaster market activity in the final days of 2024 has given investors a clear reminder that they are heading into a dangerous year.
stocks and bonds It is lowered After the Federal Reserve’s final policy meeting of the year, it was reported that the central bank may not cut rates (as it had previously expected) due to still rising inflation.
Not what Fed Chairman Jay Powell said. What he’s careful not to say, but what every fund manager knows: When Donald Trump returns to the White House this month, his economic agenda could be bad for growth, inflation, or both.
So, for the first time in many years, investors have what they call a “two-way risk” in federal policy, which drives the bond market and boosts global asset prices. The central bank may be able to keep cutting — the key is that it will be Trump’s election. But it’s not outlandish to suggest that it might start raising rates instead. This can be alive.
Stocks are not easy to read. The miracle of the US market, fresh off two years and with gains of about 20 percent each, may or may not have happened during the borrowing period. The upside is that technology companies with rich valuations should be valued because of their earnings. Niamh Brodie-Machura, head of equities at Fidelity International, said: “It’s going to be the US that drives global markets.” “It seems expensive, but there’s a reason for that.”
In fact, some A new example Being driven by artificial intelligence will make boring old business and market cycles a thing of the past – even before you consider America’s uniqueness. The frustrating issue is that this is getting silly, the AI ​​is overrated and something has to give.
My crystal ball is at the repair shop so I don’t know how this will turn out. But I do remember 2022 – hardly a memory, but still a time that money managers forget. Bonds and stocks fell sharply at the same time—about 20 percent annually—generally undermining the inverse relationship that provided investors with a safety net. Growth shocks and interest rate cuts are good for bonds. Inflation and price increases are not. It is not easy to imagine that this nightmare situation will return.
Investors are entering this risk field for 2025 slightly better than they were in early December. A few weeks ago, Bank of America’s monthly fund manager survey found what it called “overwhelming sentiment.” Since June 2020, positive sentiment – ​​for cash and stocks as well as measured by economic prospects – has seen a very rapid increase. Fortunately – tragically – the shock of the Fed’s new worldview has popped some of the bubbles.
At the same time, however, the markets still have no clue what the returning President Trump will actually do. At the final stage, a 60 percent trade tariff on imports from China and a 20 percent tariff from the rest of the world is reasonable. Equally, so is a very light touch – a collection of fare that is more symbolic than impactful. Actions against illegal immigration can range from a few targeted deportations to mass arrests and severe disruptions to the labor market.
This causes investors to squint and put shoes around the wheel. “‘Meh’ is a very unlikely path to 2025 in my view,” wrote Henry Neville, portfolio manager at Mann Hedge Fund Group. A recent blog. “I can see that the inflations of the 1970s are not dormant. Both equity and bond markets Just as scary as 2022. But at the same time, it’s conceivable that we’ve got more market-good Trump (tax cuts, government efficiency, Ukraine peace deal) than market-bad (policy flexibility, tariffs, labor market restrictions). Neville leans towards pessimism but fireworks await in either case.
Adding to his anxiety, Trump likes to make policy statements in randomly timed social media posts. This strategy keeps rivals and competitors off balance, but also takes the nerves out of fund managers and injects volatility into asset prices. Fund managers generally say they know this is coming and are better prepared to ignore the noise than the first Trump administration. I’m not so sure. His first few months in the White House will be a test — then investors can try to gauge what kind of president he will taste.
The good news is that while bonds face risks from inflation, equity hedges are cheaper. Gold – the hole in the collision – now appears in all weathers. Its 26 percent gain over the past year outstrips the S&P 500. Think-tank OMFIF thinks it is at its highest level since 1965. They may need it.
“We have to be humble and say, ‘I don’t know where this breaks down,'” said Peter Fitzgerald, chief macro and multi-asset investment officer at Aviva Investors in London. “The key is overconfidence.” best wishes.
