Weekly Comment: Stocks start new year with modest gains

4 minute read

Weekly podcast – Market overview

This week’s host, Investment Manager, Jack Bishop, alongside regular commentator and Head of Fixed Interest Research, Richard Carter, discusses their predictions for the new year across the US, UK and European markets.

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Market overview – Richard Carter, Head of Fixed Interest Research

Global equities recovered on Friday after a negative start to the new year to end the first week of 2025 higher.

The United States

US stocks rallied on Friday, ending several days of loss. Large-cap stocks had one of their best days since 6 November, the day after Donald Trump’s US election victory. This gain ended a five-day losing streak, the longest since April. Technology-heavy benchmarks added 1.8%.

Earlier in the week, US stocks had fallen on the first trading day of the year, partly due to the Atlanta Fed’s downward revision of its fourth-quarter GDP forecast from 3.1% to 2.6%. This revision was based on recent data from the U.S. Census Bureau, which led to a reduction in expectations for real gross private domestic investment growth from 1.3% to -0.7%.

The underperformance at the beginning of the week was also attributed to some profit-taking at the end of the year. It should be noted that 2024 marked the second consecutive year of over 20% gains for US stocks, capping off the best two-year stretch in 25 years. Tech-heavy indices outperformed to finish the year up over 20% for the sixth time in the past eight years.

Europe (excluding the United Kingdom)

European stocks ended the week slightly higher despite thin trading volume and light news flow.

The year began with a light macroeconomic data calendar. Spain released its first estimate of consumer price inflation for December, which came in stronger than forecast. Nonseasonally adjusted annual inflation accelerated to 2.8% from 2.4% in November due to higher fuel prices. Core inflation, which excludes energy and food prices, also quickened to 2.6%, exceeding the forecast of 2.4%.

The uptick in Spain’s inflation rate supported arguments from more hawkish policymakers in the European Central Bank (ECB) for a cautious, gradual reduction in borrowing costs. Governing Council member Robert Holzmann suggested that rate setters could take more time before cutting interest rates again, citing rising energy prices and a potential devaluation of the euro if the U.S. introduces trade tariffs. However, ECB President Christine Lagarde reiterated in a video that inflation was on track to hit the 2% target in 2025, indicating that rates remained on a downward path. The markets are currently pricing four 25 basis point cuts in 2025.

The United Kingdom

In the opening week of the year, UK large-cap stocks gained 0.91%. A weaker British pound versus the US dollar helped support the index, which includes many multinational companies that generate revenue overseas.

UK house prices rose strongly in December, according to the Nationwide Building Society. Its house price index climbed 0.7% in December from November, exceeding the forecasted increase of 0.1%. On a year-over-year basis, the house price index increased by 4.7%, the most since 2022. Separately, Bank of England data showed that net mortgage approvals for house purchases dipped to 65,700 in November, below expectations of 68,500 but still above the 12-month average of 60,400.

Tesla's challenging start

Tesla faced a difficult start to 2025, with its stock experiencing some volatility. The company reported its first-ever annual sales drop, delivering 1.79m vehicles in 2024, slightly down from 1.8m in 2023. This decline in sales was attributed to increased competition from Chinese electric vehicle manufacturers and a broader slump in global demand for electric cars.

Following the announcement of these results, Tesla's shares fell, dropping by as much as 7.5% on Thursday morning and still trading lower by 5.8% later in the day. This decline paused the late 2024 rally that had led to a return of more than 62% last year.

It should be noted that the stock did bounce back strongly however, rising by 8% during the final trading day of the week. Tesla remains optimistic about a potential rebound in sales, driven by the release of a new, more affordable vehicle model.