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The US Federal Reserve (Fed) rounded off 2024 with another rate cut which caused some market jitters.

The Fed’s final action of 2024 was to lower its interest rate range by 0.25%. The central bank also said it may have to hold off making as many rate cuts this year than initially planned as inflation is still proving tricky to bring down to its 2% target.

This announcement sparked concerns for investors which made markets dip towards the end of December. But this shouldn’t distract from the fact that markets had a stellar 2024.

The experts at Coutts, who manage our customers’ investments, believe we’re going to see a slightly different stance from the central bank’s decision makers.

Lilian Chovin, Head of Asset Allocation, Coutts, says: “The Fed is possibly moving into a new phase of the cutting cycle, signalling less aggressive cuts going forward.

“Any further reductions will likely depend on inflation progress or signs of weakening growth, with the data in the early months of the year being crucial in determining their next steps.”

In the UK, the Bank of England decided to hold steady, keeping interest rates unchanged as we entered the New Year. 

Even though investors were slightly spooked by this likely change for future rate cuts in the US, they still saw impressive market performance overall last year. US stocks continuously reached new highs, with the S&P 500 index – made up of the largest 500 US stocks – returning more than 20% for the second year in a row, according to S&P Global.

Elsewhere, the FTSE 100 – the UK’s largest 100 stocks – had its best year since 2021, while the European market managed to claim a modest gain in the face of weakening economic growth. 

The stock market’s impressive 2024 was also reflected in the performance of our own funds and portfolios. The investment team at Coutts leaned into risk which included being overweight global equities. This significantly contributed to our performance.

They also held high yield corporate bonds, seen as riskier than typical government bonds, which performed well before the team took profits on them over the summer.

Shifting our focus to this year, Coutts still favours global stocks. But they also hold US government bonds which could help stabilise returns if any periods of volatility creep in. 

Coutts’ investment team are always on the lookout for any opportunities going forward. One area in particular which is showing promising signs is Japan. Japanese corporates are witnessing an improving outlook for this year. As a result, Coutts increased its investment in Japanese stocks.

Japanese businesses have reported impressive earnings for the past 15 years compared to their global counterparts. Their market performance hasn’t always reflected that, but this could soon change.

Japan is a leading exporter to the world and its businesses are impacted by global trends. With the US showing impressive growth and a strengthening dollar, export-driven earnings are also likely to benefit. So strong global activity combined with an improving domestic backdrop for Japan should support corporate earnings for stocks there. 

Here you’ll find our previous investment market updates.