Market Update Jan 2025

Wealthline Bespoke Model Portfolio Service Quarterly report
Macroeconomic landscape
As 2024 ended, political volatility continued to shape market dynamics. The S&P 500 recorded a 25% gain for the year, despite a 2.4% drop in December. Equity markets continued to show growth, primarily driven by robust US job reports data. This climate indicates a potential soft landing for the economy, leading to speculation that the Federal Reserve may adopt a more cautious approach towards future rate cuts. Meanwhile the Q4 earnings season especially favoured technology companies, enabling equity markets to reach new highs.
The impact of America’s resounding choice to re-elect Trump will be felt around the world, although to what extent remains unclear for now. He has voiced intentions to impose tariffs on some of the US’s largest trading partners, cut corporate taxes and restrict immigration. Deregulation and tax cuts may appear market-friendly, but tariffs and mass deportations could have adverse economic impacts.
In the UK, Chancellor Rachel Reeves unveiled a budget featuring significant tax hikes alongside increased spending on infrastructure. Major changes included elevated National Insurance and capital gains taxes, as well as the elimination of VAT exemptions for private schools. The path for UK interest rates remains more uncertain amidst budget uncertainty coupled with a rise in inflation over the quarter.
As the US reigns in expectations of rate cuts this year, the European Central Bank (ECB) remains on course to cut at every meeting until June, as the German economy, Europe’s largest, struggles with a mild recession. The ECB faces a consider- able amount of uncertainty going forward, particularly around the timing, extent and impact of potential US tariffs. Notably, China opted to reduce its benchmark lending rates to foster economic growth, responding to market pressures.
Several European governments dissolved last month, and martial law was declared in South Korea, demonstrating that the political turbulence has extended beyond elections and many nations are seeking change. The world watches in anticipation as these nations grapple with unprecedented challenges and changes in power – setting the stage for a trans- formative new year in global politics.
Q4 2024 Performance
Top performer
The L&G Global Equity Index saw gains of 7.14% through the final quarter. After growth stocks saw flatter performance over Q3, such companies rebounded sharply in Q4 following Trump’s election victory. Many of the large technology stocks that are held by the fund are situated in the US and thus benefited from the positive momentum experienced by US equity markets in the wake of the election result.
Portfolio Changes and Rationale
Minor increases to risk assets have been implemented throughout the models, where appropriate, by reducing absolute return funds in favour of equities. This is minor in terms of scale, typically representing a reallocation of circa 1-2%, however is reflective of the market outlook being broadly constructive for risk assets, such as equities, as the soft-landing economic scenario looks likely to play out.
The Asian equity allocation was marginally adjusted, adding to funds with a focus on broader Asian equities. Such funds have a greater exposure to Indian equities, an area that will be monitored closely as a possible beneficiary of likely Trump imposed tariffs on Chinese goods. This provides a supportive backdrop for neighbouring countries, such as India, to enhance their trading capabilities with the US and other developed economies.
The exposure was shifted from US treasuries to UK gilts due to the compelling yield opportunity on offer. While the US economy is showing some signs of slowing and inflation moderating, economic strength across the pond has led to a reappraisal of interest rate cuts moving forward. This has created a more favourable environment for UK gilts, particularly given the spike in yields we’ve seen in the last few weeks. Furthermore, Donald Trump’s key policies are fiscally expansive, in comparison to those laid out by the Labour government recently.
📞 Call us today: 01733 314553
📧 Email: info@brookswealth.co.uk
🌐 Visit: www.brookswealth.co.uk