INVESTMENT NEWS December '24
Speed read
- The Atlanta FED predicts that US economic growth will again be better than expected in the fourth quarter of 2024 (+0.7% QoQ).
- The economic outlook for the US remains positive for 2025. While the consensus expects growth in 2025 to be around 2.0%, Deutsche Bank even predicts growth of around 2.5%.
- The outlook for the rest of the world will be largely determined by the policies that President Trump will pursue.
- His plans to impose significant import tariffs could have major negative consequences for the global economy in general and those of the EU, China and Mexico in particular.
- On the other hand, if Trump can deliver on his promise to quickly end the war in Ukraine and Gaza, there could also be significant positive consequences for the global economy in 2025 and 2026.
- Our biggest concern for 2025 remains inflation. Inflation is still too high and rising in the Eurozone (+2.3%), the US (+2.6%) and the UK (+2.3%).
- It is also worrying that inflation is still following the pattern of the 1970s and a second wave of inflation in the coming years cannot be ruled out.
- US equities were the star performer in November, up +6%. 2024 is the best year so far for the S&P 500 since 1998.
- A recent study by the World Bank shows that since 1995Q2 the global economy has tripled. Companies in the MSCI world have seen their profits increased fivefold in the same period. Companies in the US have seen their profits increase sevenfold.
- Assuming the global economy continues to grow over the next 10 years, equities remain one of the best ways to benefit.
Economy
The Atlanta FED predicts that US economic growth in the fourth quarter of 2024 (+0.7%QoQ) will again be better than expected. The economic outlook for the US remains positive for 2025. While the consensus expects growth in 2025 to be around 2.0%, Deutsche Bank even predicts growth of around 2.5%.
The outlook for the rest of the world will largely be determined by the policies that President Trump will implement once he succeeds President Biden on January 20. In particular, his plans to impose significant import tariffs could have major negative consequences for the global economy in general and for the EU, China and Mexico in particular. On the other hand, if Trump can deliver on his promise to quickly end the war in Ukraine and Gaza, there could also be significant positive consequences for the global economy in 2025 and 2026. Our biggest concern for 2025 remains inflation. Inflation is still too high and rising in the Eurozone (+2.3%), the US (+2.6%) and the UK (+2.3%). Moreover, governments are still pursuing a fiscal stimulus policy that is not economically necessary. The geopolitical unrest in the world continues to cause higher prices, as do President Trump’s announced policies. Nevertheless, the general expectation is that the ECB, the FED and the BoE will continue to lower interest rates in 2025. It increasingly seems as if policymakers accept higher inflation as a solution for the excessive government debt. The chance therefore seems high that inflation will exceed the 2% target of the central banks in the coming years. What is also worrying is that inflation is still following the pattern of the 1970s and a second wave of inflation in the coming years cannot be ruled out.
Financial Markets
US equities were the star performer in November with +6%. The year 2024 is thus far the best year for the S&P 500 since 1998. Equities benefited in November from, among other things, the decline in the 10-year yield in both the US (-12bp) and in Germany (-30bp).
Assuming that the global economy will continue to grow over the next 10 years, equities remain one of the best ways to benefit from this. A recent study by the World Bank shows that since 1995Q2 the global economy has more than tripled. Companies in the MSCI world have seen their profits increased fivefold in 30 years thanks to this economic growth. Companies in the US have even seen their profits increase sevenfold in that period. It shows once again the strength of the American economy and corporations. More than anywhere else in the world, the focus there is on profit maximization. This is something that is also clearly reflected in the significantly higher P/E multiples in the US compared to the rest of the world.
Partly because of those high multiples, the fear of a recession and the uncertainty about President Trump's policy in 2025, Warren Buffet has now made 30% cash in his investment vehicle Berkshire Hathaway. A signal that, certainly given his status as a top investor, should be taken seriously. The fact is, however, that Warren Buffet was two years too early with making cash in both 1998 and 2006.
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