Markets had the best month of 2024 with the Trump victory on November 5th unleashing the animal spirits for investors. Investors are now looking forward to him executing on his promises of lower taxes, lower regulation, and embracing cryptocurrencies, specifically Bitcoin.

This drove US equity markets and Bitcoin to all-time highs. The S&P registered an impressive 6% gain, and Bitcoin jumped from $70k at the start of the month to finish the month just under $100k. Surprisingly, the European markets delivered gains despite the looming threat of tariffs and what it might do to their economies. For average KiwiSaver members, these strong returns were amplified by the falling NZ dollar.

The Trump presidency

Trump won the US election on November 5th and, contrary to expectation, managed to engineer a red sweep (meaning they also won the House of Representatives and the Senate). Republicans now control all branches of Government in the US and have a conservative-leaning Supreme Court, which should allow them to easily enact their agenda.

You can read more about the Trump Presidency and its meaning in this blog here. Even in the few weeks since his election, he has made it very clear that he intends to follow through on his campaign promises.

US markets have reacted well, with the S&P500 hovering around 6,000 (a 6% return in the month), though the small-cap focused index, the Russell 2000 has performed even better with an 11% return reflecting the real-world impact of lower taxes and less regulatory burden. Time will only tell whether markets are proven right by their very high expectations.

New Zealand’s OCR announcement

On 27 November, the Reserve Bank of New Zealand reduced interest rates by 0.5% to 4.25%. This was widely expected by the market, though markets were more interested in the longer-term predictions rather than the immediate rate cut.

The RBNZ forecast that they anticipate cutting interest rates down to c.3% over the next 18 months, with the expectation of a further 0.5% reduction in March 2025 followed by 2 gradual cuts through the year. The RBNZ remains concerned about inflation and therefore wants to maintain slightly higher interest rates for longer. The balance between economic growth and inflation clearly remains on the inflation-fighting front at the moment.

Unfortunately for mortgage holders, this forecast was largely priced into medium and longer-term wholesale rates which is the reason why fixed-rate mortgages have hardly moved since the announcement. We fear that for fixed mortgage rates to fall below the current 5.5% threshold it will require a material worsening of the economy…or maybe Commerce Commission action to address banks’ record margins.

What a year it has been

2024 has been an amazing year for investors and KiwiSaver members, a very different year from what we expected. Market analysts expected 2024 to be a difficult year with a high probability of recession and small investment gains.

A combination of the Artificial Intelligence boom and a strong US economy has resulted in global stock markets delivering a 29.1% return year to date, with the tech-heavy US market being the strongest performer delivering a 34% return.

The US economy has remained resilient and is expected to deliver above-trend growth of 3% confounding all expectations. I suspect the US Government’s massive spending program is a big reason for this.

Many other parts of the world however are skirting around recession (though you would not guess that from market performance). China is trying to figure out how to reconfigure its economy away from property, high levels of debt at the local government level and a shrinking population which is causing massive headwinds. Europe continues to struggle to figure out its place in the world with traditional manufacturing being squeezed by high energy costs and the inability to execute on much needed structural reform.

In New Zealand, we are in the middle of the worst-ever per capita recession driven by a combination of the Government’s austerity program and successive governments’ inability/unwillingness to drive through change in our economy to improve productivity. The New Zealand stock market has delivered a solid headline 15% return year to date, though this is one of the worst-performing global markets with falling interest rates not delivering the much hoped-for kicker.

What 2025 brings is anyone’s guess. The one thing we have learned over the past 5 years is that forecasts are largely meaningless. Economists and equity market strategists are predicting a good year for 2025, though very few forecasts have been correct over the past 5 years…

*The views and opinions in this video are those of Rupert Carlyon. This content is for informational purposes and should not be taken as financial advice.

* Past investment performance is not a reliable indicator of future performance as investment markets can be volatile. It is important to focus on long-term financial goals rather than short-term market movements or recent performance trends.

* If you are unsure about the suitability of an investment, you should seek advice from a qualified financial adviser