The economy appears to be on a stable trajectory as it approaches the end of 2024, notwithstanding the turbulence of the U.S. presidential campaign and increasing global conflicts. Inflation rates have diminished significantly, and growth indicators in the United States remain relatively strong. However, speculation about the economic landscape in 2025 has arisen, particularly in light of incoming President-elect Donald Trump's intended policy shifts, which could yield unpredictable implications for financial markets and economic conditions.
In the final quarter of 2023, the S&P 500 index experienced a remarkable surge, nearing new highs. This culminated in January 2024 when the index finally achieved this milestone, propelled largely by the "Magnificent Seven" tech giants: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. Throughout the year, the S&P 500 closed at record highs on 57 occasions, with particularly large rises occurring after election results, though this rally has shown signs of deceleration in recent weeks.
Supporting this bullish trend, there has been a global slowdown in inflation, generating anticipation for a potential easing in monetary policy. Following a period of tightening measures instituted by central banks to combat inflation, some advanced economies began to enact reductions in interest rates as a response to economic conditions. For instance, the Federal Reserve (Fed) implemented a half-point rate reduction in September 2023, signalling a shift towards prioritising job market stability over inflation control. By December 2023, the Fed had announced its third rate cut of the year, a quarter-point decrease, yet tempered expectations for future cuts, leading to varying projections among officials regarding potential rate adjustments in 2024.
The Fed's policy revisions have raised concerns about the resurgence of inflation. Following the recent announcement, yields on long-term Treasury notes escalated, reaching levels not seen since May. These yields, along with rising mortgage rates, suggest that investors may be anticipating longer-term inflation, despite the Fed's attempts to lower rates. Market sentiment reflects apprehensions over Trump's economic strategies, particularly regarding potential increases in the federal deficit, which could have repercussions for inflation rates.
In connection with these developments, tariff policy has emerged as a contentious topic within the ongoing U.S. presidential campaign, with both candidates advocating for tariffs to protect American manufacturing. Trump has indicated that he plans to impose tariffs on imports from Canada, Mexico, and China, which could amplify tensions in international trade, potentially igniting a trade war. This scenario raises further questions about consumer prices and inflationary pressures, driving a wedge between differing political perspectives on economic management.
According to the University of Michigan's consumer sentiment survey, interpretations of economic changes diverged sharply along party lines, with Republican sentiment rising post-election, contrasting with a decline among Democrats. Joanne W. Hsu, who leads the University of Michigan Survey, noted that "Democrats voiced concerns that anticipated policy changes, particularly tariff hikes, would lead to a resurgence in inflation," while Republicans maintained optimism about a decrease in inflation.
The momentum of the cryptocurrency market has also skyrocketed in relation to Trump's electoral success, with bitcoin reaching unprecedented highs, including a recent figure of $100,000 per coin. However, as crypto values exhibit volatility, experts caution against categorising them as stable currencies. Jerome Powell, the Fed chair, characterised bitcoin as more of a competitor to gold than to traditional fiat currency.
Companies at the centre of the artificial intelligence boom, such as Nvidia, have thrived in this environment. Nvidia's stock saw an explosive increase of over 800% in 2023, briefly surpassing Apple and Microsoft in market capitalisation. The chipmaking industry has been propelled by demand from both video gaming and AI model training, marking a significant trend in technological investment and innovation.
Amid these economic shifts, the landscape of mergers and acquisitions (M&A) has experienced fluctuations, reaching a decade-low in 2023, though a modest recovery was noted this year. In the U.S., industry stakeholders express cautious optimism that Trump's potential presidency could favour corporate deal-making, especially with anticipated changes in oversight from the Federal Trade Commission. Nonetheless, ongoing uncertainties regarding economic policies and interest rates remain significant factors influencing M&A activity as the market awaits clear signals about its future direction.
As 2024 progresses, the interplay between economic policy, market sentiment, and technological advancements will likely dominate discussions surrounding business practices in various sectors, continuously shaping the evolving landscape of U.S. and global economies.
Source: Noah Wire Services