As 2024 draws to a close, the ripple effects of the US presidential election, renewed geopolitical risks, and the push-and-pull between inflation and central bank policy are shaping the global investment landscape. While the broader outlook is still positive, navigating these dynamics calls for a balanced, flexible approach. 

The US equity market has been the standout performer this month, driven by renewed optimism following Donald Trump’s return to the White House. The so-called “Trump trade” is back, supported by expectations of pro-business policies, deregulation, and potential fiscal stimulus. Financials, consumer discretionary, and small-cap stocks have led the charge, reflecting increased confidence in cyclical, growth-sensitive sectors. 

So far, corporate earnings have been beating expectations, and this is expected to continue into the new year, although there are some areas in which we need to be somewhat cautious about high valuations and heightened regulatory scrutiny. 

The bond market has also experienced volatility. Early in the month, fears of inflationary pressure from increased government spending drove bond yields higher, but subsequent remarks from Federal Reserve officials pointing to steady growth and moderating inflation reversed the trend. While US economic growth is still resilient, US corporate bonds, offering attractive yields, remain appealing in portfolios. 

European equity markets faced some headwinds with renewed fears of US-EU trade tariffs, which weighed on key sectors like autos and industrials, while ongoing political instability linked to populist movements has added to uncertainty. This environment favours a more selective approach to European equities, with domestically focused companies seen as more resilient than export-dependent firms, given a weaker Chinese economy. 

Inflationary pressures in Europe have persisted, but signs of slowing growth have prompted the European Central Bank to soften its stance. Investors are watching closely for further clarity on ECB policy. 

Emerging markets underperformed this month, especially in Asia. US-China trade tensions have resurfaced, with President Trump threatening 60% tariffs on Chinese imports. Combined with China’s underwhelming economic stimulus efforts, this has left investors cautious. While China’s policies have prevented further economic deceleration, they have yet to drive a stronger growth outlook. Given the dual pressures of trade friction and limited policy support, investors are approaching emerging markets with caution. Countries less reliant on US trade may offer more resilience, but active, selective exposure is key. 

To navigate these crosscurrents, a balanced, diversified approach is prudent. Exposure to both cyclical and defensive sectors, combined with themes like AI and the energy transition, can support long-term growth. This is a position we have kept for the last several months, staying close to our long-term strategic allocations. 

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Please remember, this content is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, to determine the risks associated with the investment and its suitability.