Negative End to 2024, After a Positive Investment Year with Large Variations in Returns
The year for global stock markets ended with a slight decline in December, though 2024 was overall a positive investment year, yielding 25% return on global equities. December saw a small loss of 0.4%, but this minor drop was primarily due to a sharp increase in a few key American tech stocks, the so-called “Magnificent-7,” while the rest of the market experienced losses.
Danish Stocks Struggled Again: Danish equities had another poor month in December, largely driven by a significant drop in Novo’s stock, which led to a 3.9% decrease in the Danish stock market. Over the entire year, Danish stocks ended with a small loss of 0.6%, a stark contrast to the 33% higher return of US equities. This marks the second consecutive year that Danish stocks lagged behind significantly.
Interest Rates and Bond Markets: In the US, interest rates were raised as the Federal Reserve began to tighten policy in the fall, which influenced interest rates in Europe and Denmark as well. As a result, bonds experienced negative returns in December. However, high-yield bonds, which are more volatile, provided a modest positive return.
Reasons Behind the Market Trends: The economic outlook for the US showed surprising growth, with more jobs created and higher-than-expected economic activity. Inflation, however, began to rise again after having fallen significantly earlier in the year, reaching 2.7%. This unexpected inflationary increase dampened expectations that the Fed would continue lowering interest rates in 2025, putting upward pressure on rates.
US government debt is at historic levels, creating pressure for higher interest rates to finance the deficit. Rising rates have made bonds more attractive compared to equities, thus slowing down stock market growth. Still, US tech stocks, especially those in the “Magnificent-7,” have continued to perform better than the rest of the market.
The challenges facing the stock market in 2025 include the high valuation of many stocks, particularly in the tech sector, and the growing expectation that companies will continue to increase profits by another 15-20% in the coming year.
All Eyes on Trump’s Policy After January 20, 2025: The financial markets are eagerly waiting to see what kind of policy direction former President Donald Trump will pursue once he assumes office again on January 20, 2025. While most analysts agree that his approach is unpredictable, there are both positive and negative scenarios under consideration.
- Positive Scenario:
- Economic growth and higher profits due to lower taxes in the US.
- Reduced inflationary pressure due to increased US oil production and a trade deal with China.
- A potential resolution to the Ukraine crisis.
- Negative Scenario:
- Rising interest rates and increased inflation, affecting global housing markets, particularly in the US.
- A potential trade war between the US and its trading partners, especially China and the EU, could lead to higher tariffs, reduced global trade, and increased inflation in the US.
- The risk of stagflation, as inflation rises while economic growth slows.
The financial markets will likely be highly reactive to these developments, and much remains uncertain regarding the economic policies that will be implemented under Trump’s second term.
In Conclusion: 2024 ended with mixed outcomes, but the broader trends indicate strong performances in certain sectors like US technology stocks, while other markets, particularly in Denmark and some European regions, faced setbacks. Looking ahead to 2025, markets are cautiously optimistic, but the potential for volatility remains high, especially given the uncertainties surrounding Trump’s return to office and his impact on both domestic and international policy.