Market Briefing: 6th January

Equity markets had a poor first day to 2025 but rallied well once they’d shaken off their New Year’s Eve hangover! Last week saw some decent US and UK returns which helped power stock markets. Bond markets also bounced back after a poor month in December. Whilst December wasn’t a great month for stocks or bonds, it didn’t derail an excellent 2024 for equity markets, with the global share market up by c20% in 2024.

Last week / Last year

• It was a quiet week, which saw equity markets and bond markets kick-off 2025 in good fashion
• Overseas’ gains were boosted last week due to US Dollar strength: with the Dollar rising by c1.2% vs the Pound
• Last week closed out an excellent 2024 for stock markets: with the global market rising by c20%
• US stocks (and the Magnificent 7 in particular) were the big drivers of stock returns in 2024
• UK stocks had a decent 2024, with the banking sector being the stand-out gainer
• Bond markets rose last week but had a poor 2024: economic data was better than expected, which meant fewer interest rate cuts being priced into the bond markets.

This week

• We must wait till Friday for this week’s big data point, with the monthly employment data released at lunchtime (UK time)
• Euro area inflation data is released tomorrow
• S&P Global composite PMI data is released for the UK later today and there are some trading updates due this week for UK corporates such as Next (tomorrow), Shell (Wednesday), Tesco and M&S (Thursday) and Sainsbury’s on Friday.

Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.

More detail:

• Global share markets had a good start to the new year, with UK and US shares pushing higher in the first few days of trading. US returns for Sterling based investors were helped by Dollar strength, which saw the greenback rise by 1.2% vs the Pound last week, with the exchange rate closing the week at 1.24 GBPUSD.
• UK shares were helped by some robust performance from the oil majors (energy makes up c9.5% of the FTSE All Share benchmark), with BP and Shell both up strongly on the week (7% and 5.66% respectively). For 2024, the broad UK market rose by 9.4%. Beneath the surface, there was some huge sector divergence, with index heavyweight sectors such as energy (-3.6%), materials (-11.8%) and healthcare (1.1%) dragging on returns, whilst the financials sector (+24.1%) boomed, with the banking sub-sector up by 42.7% on the year!
• December itself was quite a poor month for stock markets and an even worse one for bond markets. Stock markets didn’t get the “Santa rally” that they often do, but this didn’t take the shine off an outstanding year in 2024, which saw global share markets return just over 20% in GBP terms.
• US equity markets were the key contributor to global equity market returns in 2024. The US market constitutes c74% of the global developed market benchmark and the US stock market was up c27% last year. Over half of the returns in the US stock market last year came from just 7 stocks, with the so called “Magnificent 7” (which comprises Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla) up by c70% as a cohort. This group of stocks have lived up to their billing over the past year and have demonstrated 100% growth in their profits (on a year-over-year basis), which has powered their share prices.
• UK economic data kicked off the year in good spirits, with some good house price data. Data from Nationwide Building Society showed a 0.7% increase in December (from November), which made for a 4.7% increase on a year-over-year basis: the biggest increase since 2022.
• US economic data was also decent last week, with the weekly initial jobless claims print from the Labor Department dropping to 211,000: its lowest level in eight months.
• Bond markets posted modest positive gains last week, with UK government bonds up by around 0.3% on the week. This helped stem a recent fall in sovereign bond markets which saw UK gilts fall by around 3.3% in 2024.
• Most of the fall in sovereign bonds occurred in the 4^th quarter as yields pushed higher both in the UK and the US. This reflected the bond market’s view that interest rate cuts wouldn’t come as quickly (or as deep) as had previously been forecast. This view was confirmed for the US by the US Federal Reserve at their 18^th December meeting with Fed Chair Powell noting that the economy had been “remarkably good” and disclosing that the US Fed see just 2 interest rate cuts in 2025 as opposed to the 4 that they had forecast (for 2025) when they met back in September 2024.

The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.

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