Market Update – December 2024

Market Outlook

In early November, the US election settled with a convincing victory for the Republican party. This win covered all three chambers and was certainly more emphatic than expected. We would however note that in the lead up to the election, both betting markets and crypto markets were pricing this outcome far more aggressively than standard polling was suggesting.

Trump’s appointment of Scott Bessent as Treasury Secretary gives away the key risk the administration perceives, a sharp rise in 10-year bond yields, especially beyond 5.5%, which could severely impact the US banking system and derail planned spending. Bessent’s expertise is considered suited to navigating a volatile sovereign bond market and reduce borrowing costs. Elsewhere, Trump’s other policies such as tax cuts, protectionist trade measures and a pro resource extraction will attempt to fuel US growth. Thus, we foresee these measures causing a rerate in US focussed companies without multinational operations and the energy sector as growth options may return.

A recent report by Deloitte Access Economics suggests that Australia’s fiscal deficit by 2025 is likely to exceed expectations, with government revenues falling short due to the waning boost from rising commodity prices. This could reshape labour markets, where government-driven demand—particularly in healthcare and social assistance—has grown significantly since the Global Financial Crisis. The budgetary strain, coupled with a general election likely in May 2025, is expected to shift political focus back toward fiscal discipline. This could weaken labour markets, a critical factor in reducing inflation and interest rates, which the bond market appears to underestimate. Despite modest rate cut projections, labour market softening could accelerate into late 2025, impacting rates and corporate earnings.

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