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Donald Trump and the Republican party have achieved an emphatic victory in the US elections. In the weeks beforehand, the ‘Trump trade’ had been gathering momentum in financial markets, boosting the dollar and Treasury bond yields.

The Fed’s rate cutting cycle has kicked off, a soft landing still looks likely and China has finally pressed the stimulus button. It feels like we could almost be set for a Goldilocks scenario.

It’s historically a tricky month for equity markets, and this September is no exception. Rising concerns over US growth, sluggish data from China and the geopolitical backdrop have seen risk aversion come to the fore.

Any thoughts of a quiet summer were quickly dispelled by gyrating financial markets in early August. Confidence evaporated, causing a sharp spike in volatility, before markets rebounded to close a volatile week almost flat.

Markets remain in high spirits, with increasing confidence in a Fed rate cut in September. But elsewhere the backdrop is far from certain, with political risks rising in the US and Europe and a great deal riding on the second quarter earnings season.

So far, 2024 has proved a little more complicated than markets were expecting. Jay Powell, chair of the US Federal Reserve warned consistently that US rates could stay ‘higher for longer’, and indeed they have, but elsewhere rate cuts could be imminent.

From six to two cuts… or even none. US rate cut expectations during 2024 have collapsed. Markets may now need to accept bigger swings in market sentiment.

Markets started the year in confident mood, betting that the US Federal Reserve would take the lead on interest rate cuts, with as many as six cuts in 2024. Those hopes have since faded and forecasts of a first cut in June are looking more uncertain.

‘Fear of missing out’ has been a major catalyst driving markets higher in recent months. As we approach the end of the first quarter of 2024, we consider where that leaves the outlook for asset prices.

It has been said many times that the last mile of disinflation is the most difficult. With markets betting on the timing of the first cut in interest rates, every monthly inflation number is both eagerly anticipated and closely analysed for clues.

This year, markets will remain transfixed by familiar stories: the path of inflation; how fast interest rates will fall from multi decade highs; and the potential for a growth slowdown. The returns for the year will likely pivot on how the reported data fall out.

Markets are approaching year end in confident mood, anticipating interest rate cuts in the first half of next year. Despite western central banks’ repetition of the ‘higher for longer’ mantra, hopes are rising over the timing of the first cut and how quickly rates will then fall.

Interest rate uncertainty has gripped the markets, after US jobs and inflation data beat expectations. A sharp rise in US Treasury bond yields has lowered the attractions of more highly valued equities.

Despite forecasts of recession, GDP growth in the US has so far proved resilient and US inflation has beaten forecasts. Conversely, in China the recovery has yet to fire up and consumer price growth is subdued.

As we enter the dog days of summer, markets are struggling to find conviction, overshadowed by the possibility of recession. Meanwhile core inflation remains sticky and labour markets are still tight.

Clouds of uncertainty still hang over financial markets, whether about inflation, recession or the peak in the interest rate cycle. Throw in the brinkmanship surrounding the US debt ceiling and it’s no wonder markets have been range bound in recent months.

Equity markets have spent the last month moving in a relatively narrow range. There seem to be multiple headwinds. Even before the regional banking crisis in the US, higher interest rates have curbed the demand for credit, while core inflation remains stubbornly high.

After the turbulent days of early March, markets now seem to view the banking crisis as a small number of idiosyncratic events. And yet a broader credit squeeze remains a possibility, which could rein in economic growth.

February proved disappointing for markets, as stronger economic data crushed expectations of falling inflation and an early pivot in interest rates. Central bank rhetoric has become more hawkish and higher terminal interest rates are now forecast.

Markets have rebounded in 2023, as deeper recession fears fast became a thing of the past. Hopes are growing for a softer economic landing, despite persistently hawkish central bank rhetoric.