The start of 2025 has already been eventful, particularly with Trump’s inauguration this week. Stock markets have remained relatively stable from the end of last year into the new one. The prevailing outlook suggests this trend may continue, provided the US economy continues to perform strongly. There are reasons to be optimistic about this, though as we know, things don’t always go entirely as expected. That said, smaller US firms could particularly benefit from reductions in bureaucracy and taxes, creating a favourable environment for them.

There is hope that some growth can be found in the UK. Our stock market has had a surprisingly strong start to 2025, although this does not necessarily reflect the underlying economic performance, with many statistics still looking poor. There was some positive news this week regarding support for UK banks, and we can only hope that this leads to a reduction in the regulations that have burdened so many sectors, including our own. Time will tell.

Market Report: Q4 2024

As we closed out the final quarter of 2024, global markets demonstrated remarkable resilience and growth. The US economy, in particular, has exceeded expectations, driven by strong domestic consumption. Both the S&P 500 and Nasdaq 100 reached new all-time highs, with gains of over 25% and 30% respectively for the year. This growth has largely been fuelled by the tech giants, with companies such as Nvidia, Meta, and Amazon posting significant gains.

In Europe, there has been a renewed focus on defensive spending. Germany met the NATO alliance’s target to spend 2% of its GDP on defence in 2024. Poland, which borders both Russia and Ukraine, aims to spend 4.7% of its GDP on defence this year4. Overall, EU defence spending is projected to reach €326 billion in 20245. The German economy is suffering because China now competes with them in making so many industrial products to a high standard. Germany of course once was such a power house in this sector. Europe as a whole has other issues. It does not have any large Internet businesses. The global behemoths being in either the USA or China. Additionally Trump is targeting the high Tariffs the EU has. So the outlook for the European investment environment looks quite difficult over the next 24 months.

In Asia, the economic landscape is being reshaped by the re-election of Donald Trump. His tough stance on trade and tariffs is expected to impact China’s economic strategies. China achieved a 5% GDP growth in 2024, driven by exports and high-tech investment.

Personal Finance Points

Impact of Trump’s Policies on US Companies: With Donald Trump back in office, his pro-business policies are expected to benefit US companies, particularly those in the AI and technology sectors. Elon Musk’s appointment as Head of the Department for Government Efficiency (DOGE) is likely to drive significant advancements and investments in these areas.

Defensive Spending in Europe: The increased focus on defence spending across Europe presents opportunities for investors. Companies involved in defence, cybersecurity, and related sectors are poised to benefit from this trend.

China’s Response to US Policies: As China navigates the challenges posed by Trump’s trade policies, there may be shifts in global supply chains and trade dynamics. Investors should keep an eye on how different nations adjust their strategies in response to these changes.

Job Vacancies and AI: Recent data indicates a decline in non-AI job vacancies as more people seek roles that are less likely to be automated. For example, jobs in skilled trades, healthcare, and creative fields remain in demand and offer some protection against automation. A survey found that 37% of companies using AI reported that the technology replaced certain workers’ jobs in 2023.

As we move into 2025, it’s crucial to stay informed about global economic trends and policy changes. The resilience of the US economy, the strategic shifts in Europe, and the evolving dynamics in Asia will all play a significant role in shaping investment opportunities. By staying proactive and adaptable, we can continue to navigate these changes.

This article is from our founder Paul Coffin and is a snippet from our Quarterly Newsletter which also has contributions from some of our other Investment Managers. We would be delighted to find out how we can support you with your investment management needs – Contact us today: support@capitalfinancialmarkets.co.uk