Market Update – 8th January 2025.

Market performance has been mixed so far this week, driven by a variety of factors impacting sentiment. The week began on a positive note, with traders welcoming what is, for the most part, the first full trading week of 2025. However, it is another shortened week, for US stock markets which closed on Thursday to mourn the passing of former President Jimmy Carter.

US AI and chip makers had a strong start, with global semiconductor stocks rallying after Taiwan’s Foxconn reported record quarterly revenue. Nvidia also seemed poised to hit record highs, as investors awaited a keynote speech from CEO Jensen Huang. However, the stock quickly sold off on Tuesday as investors were underwhelmed by the speech, despite announcements of new products and potential growth opportunities.

US markets reversed earlier gains on Tuesday after stronger-than-expected economic data reignited concerns about inflation. The ISM services index for December showed accelerated growth, with input prices hitting their highest level in nearly two years. Additionally, the Job Openings and Labor Turnover Survey (JOLTS) revealed a higher-than-expected number of job openings in November, signalling continued strength in the labour market. While these data points indicate healthy economic activity, they also raised fears of persistent inflation, leading traders to reassess expectations for future monetary policy. Consequently, the likelihood of no further Federal Reserve rate cuts this year increased to 18%, up from 13% the previous week. Bond markets reacted swiftly, with the 10-year Treasury yield rising 7 basis points to just under 4.7%, its highest level in nine months. This combination of rising prices and a strong job market could lead traders to dial back expectations for rate cuts in 2025.

The ‘my wealth invest’ app will be available to clients who hold investments with my wealth, which is a trading name of Wealth at Work Limited, part of the Wealth at Work group.

Market fluctuations were also heightened by speculation surrounding President-elect Donald Trump’s trade policies. Reports suggested his team was considering targeted tariffs on critical imports, rather than applying blanket tariffs. This news boosted market confidence, pushing stocks higher on Monday, but Trump later dismissed the report. While the specifics of his proposed tariffs remain unclear—ranging from 10% on global imports to 60% on Chinese goods and a 25% surcharge on products from Canada and Mexico—investors are watching closely for further updates as his January 20th inauguration approaches.

Despite the mixed economic signals, European markets closed at their highest levels in three weeks on Tuesday. Investors absorbed December inflation data, which rose by 2.4% year-on-year—up from the previous month but in line with expectations. Core inflation, which excludes volatile items like energy and food, remained steady at 2.7%. Additionally, eurozone unemployment held steady at a record-low 6.3%, signalling ongoing economic stability. As the European Central Bank’s January 30 policy meeting draws closer, the week’s inflation data will play a key role in shaping market expectations, with many analysts anticipating an interest rate cut.

UK economic data released this week also presented a mixed picture. The Services PMI for December 2024 was revised slightly down to 51.1, indicating modest expansion in the services sector. Retail sales, however, surged by 3.1% in December, driven by strong Black Friday spending, far exceeding expectations. Nevertheless, total retail sales for the year grew by only 0.7%, highlighting the challenging environment retailers have faced. Looking ahead, markets may be more optimistic about 2025, with expectations of increased consumer spending fuelled by real wage growth, which could support economic recovery.

The main focus for the week will be the key US non-farm payrolls data, unemployment rate along with the release of the Federal Reserve’s December meeting minutes, which should provide further insight into the central bank’s policy outlook.

Kate Mimnagh, Portfolio Economist