Even a shortened trading session could not hold back investor enthusiasm, as the Dow Jones and S&P 500 hit fresh record highs at the end of the week.
Elsewhere, the animal spirits emanating from the US has reduced some of the appeal of haven assets such as gold, and both Fresnillo (LON:FRES) and Endeavour Mining were early premier index casualties. The FTSE 100 hobbled around the flatline in opening exchanges, and its inability to break out of what has been a tight trading range in recent months leaves the index ahead by 7% so far this year.
While this is a decent performance in terms of total return (the average dividend yield within the index is currently 3.6%, lifting the gain to double figures), the inevitable comparison to US markets in particular leaves the index trailing in the wake of an especially growth-driven market.
The moves capped off a strong November, largely based on a post-election rally that broadened out from the “Magnificent Seven” which had driven much of the gains so far this year. Quite apart from the major indices, which saw gains ranging between 5% and 7.5% in the month, the Russell 2000 added almost 11% as investors sought smaller cap stocks which could benefit from a raft of tax cuts from the President-elect.
Another of the year’s dominant themes has been the downward direction of interest rates. While reductions are set to slow next year, with just two cuts now being priced in, the consensus is almost 70% skewed towards the Federal Reserve lowering rates by a further 0.25% later this month.
The more circumspect outlook for monetary easing is based on a combination of factors, including the most difficult “last mile” of bringing inflation down to the 2% target, the potentially inflationary impact of measures from the new administration and the strength of the US economy, which is showing few signs of moving towards the recession which some had feared towards the end of this year.
Ahead of the next Fed meeting, this week will culminate in the release of the latest non-farm payrolls report. It is expected that up to 200000 jobs will have been added in November, against an outlier number of 12000 the previous month, where strong revisions are expected given the partly misleading effects of hurricanes, worker strikes and a low survey collection rate.
The unemployment rate is expected to edge up to 4.2% from 4.1%, with the main possibility of alarm bells coming from a stronger headline number which could decelerate the path of rate reductions. In the meantime, leading in to the final month of the year, each of the main indices have had a storming 2024 with the Dow Jones having added 19.2%, the S&P 500 26.5% and the Nasdaq 28%.
Asian markets were mixed to positive overnight, with the bullishness of a US-centric new regime continuing to be something of a headwind. The Bank of Japan Governor mentioned over the weekend that given the current state of economic data, another rate hike could be approaching, with markets factoring a likelihood of over 60% that this would follow in December. More ominously, he added that there was a “big question mark” on the economic outlook in light of potential US tariffs.
Chinese investors were more sanguine, for the moment at least, after pleasing manufacturing numbers which were the highest since June. The main monthly reports each showed numbers which were in expansionary territory, although this could have been partly explained by companies ramping up production ahead of any potential tariffs and by US importers to similarly get ahead of that curve.
More bullish investors may also have taken the view that the stimulus measures that the Chinese authorities have announced this year are beginning to wash through, but time will tell as to whether they have been sufficient to rescue the economy more widely.
The spectre of inflation has also reared its head again in the UK, driven by the twin assaults of the domestic Budget measures and the possibility of US tariffs, which are currently sending shockwaves around many developed markets outside of the US. This has left the likelihood of a rate cut this month in the balance, and indeed bond yields in the background have been putting upward pressure on mortgage rates.
This has been part of the reason for pressure on the housebuilding stocks of late, and in early trades today broker downgrades weighed on Persimmon (LON:PSN) and the soon-to-be-relegated Vistry Group (LON:VTYV), as well as reading across to the likes of Taylor Wimpey (LON:TW).