A great week for markets

Key takeaways

A rebound in financial assets, supported by a strong start to US ‘corporate earnings season’ and favourable data on inflation supporting bond prices. Outside the US, and despite a weaker economic outlook, share prices rose on hopes for further interest rate cuts.

A strong week in financial markets
Investor sentiment recovered during the week, with US markets benefiting from outperformance in the energy sector, as well as the positive reaction to strong quarterly results in the banking sector. While US stock market valuations are high, domestic companies have outperformed expectations over the past few years, reflected in consistent earnings growth per share. They could also continue to benefit from a lower tax and looser regulatory Trump presidency. Meanwhile, in the bond market, prices also rose (while yields, which move in the opposite direction, fell) as US core inflation in December was slightly lower than expected. This has strengthened hopes that the US central bank will be able to resume interest rates cuts during 2025.

European share prices close to a two-decade high
Despite the German economy shrinking for the second year in a row, and a bleak domestic outlook for 2025 should new US tariffs materialise, European shares rose during the week, with the EURO STOXX 50 index – which represents the shares of 50 sector-leading companies from eurozone countries – reaching its highest level since 2000. Likely catalysts for this positive sentiment include hopes the European Central Bank will continue cutting interest rates and that investors have been undoing some of their low positioning in European shares. The lower value of the euro is also helping the region’s exporters. Sentiment will be helped by improving economic data in key trading partner China, and hopes for a recovery in the global economy if interest rates continue to ease.

UK bonds and shares rise on hopes of lower interest rates
Against the backdrop of continuing poor UK data releases, including November’s low economic growth of 0.1% and the unexpected drop in December’s retail sales, investors reacted by interpreting ‘bad news is good news’ for cuts to domestic interest rates. Expectations have risen that the Bank of England will respond to the recent disappointing news flow by aggressively cutting interest rates this year. This led to a recovery in the price of UK government bonds (gilts) and shares during the week. Despite the rise in UK gilt prices, yields (which move in the opposite direction)

Market moves

• Ranked by their market size, the top five shares in the S&P 500 Index (Apple, NVIDIA, Microsoft Amazon and Alphabet/Google) represent 29% of the index. This is the highest concentration of US market leaders since 1964.

• The start of the earnings season in the US saw major banks report strong fourth quarter earnings, buoyed by a rebound in dealmaking and higher trading revenues.

• Supported by the weaker level of the pound, the UK’s FTSE 100 Index reached a record intra-day high on Friday. Many major UK companies earn much of their revenue in dollars and benefit when this is translated back into a weaker pound.

What to look out for this week

• On Tuesday, UK employment data for November will be released. Analysts expect no change to October’s 4.3% unemployment rate.

• On Thursday, US weekly jobless claims will be announced, as will Japanese consumer price inflation for December.

• On Friday, a key measure of business confidence, the Purchasing Managers’ Index for January, will be released in the US, UK and Germany.

• On the same day, the Bank of Japan is expected to announce a 0.25% increase in interest rates to 0.5%.

Important Information

Handelsbanken Wealth & Asset Management Limited is authorised and regulated by the Financial Conduct Authority (FCA) in the conduct of investment and protection business, and is a wholly-owned subsidiary of Handelsbanken plc. For further information on our investment services go to wealthandasset.handelsbanken.co.uk/important-information. Tax advice which does not contain any investment element is not regulated by the FCA. Professional advice should be taken before any course of action is pursued.

• Find out more about our services by contacting us on 01892 701803 or exploring the rest of our website: wealthandasset.handelsbanken.co.uk
• Read about how our investment services are regulated, and other important information: wealthandasset.handelsbanken.co.uk/important-information
• Learn more about wealth and investment concepts in our Learning Zone: wealthandasset.handelsbanken.co.uk/learning-zone/
• Understand more about the language and terminology used in the financial services industry and our own publications through our Glossary of Terms: wealthandasset.handelsbanken.co.uk/glossary-of-terms/

All commentary and data is valid, to the best of our knowledge, at the time of publication. This document is not intended to be a definitive analysis of financial or other markets and does not constitute any recommendation to buy, sell or otherwise trade in any of the investments mentioned. The value of any investment and income from it is not guaranteed and can fall as well as rise, so your capital is at risk.

We manage our investment strategies in accordance with pre-defined risk objectives, which vary depending on the strategy’s risk profile.

Portfolios may include individual investments in structured products, foreign currencies and funds (including funds not regulated by the FCA) which may individually have a relatively high risk profile. The portfolios may specifically include hedge funds, property funds, private equity funds and other funds which may have limited liquidity. Changes in exchange rates between currencies can cause investments of income to go down or up.

This document has been issued by Handelsbanken Wealth & Asset Management Limited. For Handelsbanken Multi Asset Funds, the Authorised Corporate Director is Handelsbanken ACD Limited, which is a wholly-owned subsidiary of Handelsbanken Wealth & Asset Management, and is authorised and regulated by the Financial Conduct Authority (FCA). The Registrar and Depositary is The Bank of New York Mellon (International) Limited, which is authorised by the Prudential Regulation Authority and regulated by the FCA. The Investment Manager is Handelsbanken Wealth & Asset Management Limited, which is authorised and regulated by
the FCA.

Before investing in a Handelsbanken Multi Asset Fund you should read the Key Investor Information Document (KIID) as it contains important information regarding the fund including charges and specific risk warnings. The Prospectus, Key Investor Information Document, current prices and latest report and accounts are available from the following webpage: wealthandasset.handelsbanken.co.uk/fund-information/fund-information/, or you can request these from Handelsbanken Wealth & Asset Management Limited or Handelsbanken ACD Limited: 77 Mount Ephraim, Tunbridge Wells, Kent, TN4 8BS or by telephone on
+44 01892 701803.

Registered Head Office: No.1 Kingsway, London WC2B 6AN. Registered in England No: 4132340