Economic Update - December 2024

Welcome to our monthly Economic Update for December 2024. November saw a month of significant developments in the global financial markets. Despite ongoing geopolitical tensions and political shifts, major equity markets have shown resilience and continued their upward trajectory. The MSCI World ex-Australia and S&P500 have posted impressive gains of 21% and 27% year-to-date, respectively. However, the Australian share market has lagged behind, with a 15% increase.

Sector Performance:

Financials:

• Positive Influences: Major banks have performed exceptionally well, gaining over 50% and driving the ASX to an all-time high. Good credit quality and strong cost management have been highlighted in recent results.

• Negative Influences: Earnings growth expectations remain muted at around 2% over the next two years, leaving little room for valuation upside from current levels.

Resources:

• Positive Influences: There are anecdotal signs of recovery in China, with retail sales and corporate profits ticking higher in recent months.

• Negative Influences: China's economic slowdown has weighed heavily on the sector, driving earnings growth expectations into negative territory. A decisive turn in Chinese policy towards demand-side/consumer-focused policy is needed for a positive catalyst.

Industrials:

• Positive Influences: The sector has shown resilience with a 9% profit growth forecast for FY25.

• Negative Influences: The overall market faces challenges with half of the market experiencing near zero or negative earnings growth.

Focus of Financial Markets Going Forward:

As we move into 2025, the focus of financial markets will be on the inauguration of Donald Trump as the next US president. This event will provide clarity on which policies are posturing versus those that will be implemented. Investors should continue to trust their well-diversified portfolios and focus on long-term financial goals, especially during periods of heightened market volatility and uncertainty.

Key Factors Impacting Financial Markets:

1. Interest Rate Cycle: The start of the interest rate easing cycle is expected to create a tailwind for risk and valuations for long-duration assets.

2. China's Economic Policy: A shift towards demand-side/consumer-focused policy in China is crucial for a positive catalyst in the resources sector.

3. US Political Landscape: The policies of the new US administration will significantly impact global markets, particularly in terms of trade and tariffs.

Thanks to our research partners at Lonsec for assisting with the preparation of this Economic Update.

From all of us at Elevate Advice Group, we thank you for your trust and ongoing support. We wish you and your family a very Merry Christmas and we look forward to speaking further during 2025.