Markets are definitely in holiday mode with thin liquidity and very few traders at their desks. 2024 is drawing to a close with growth having exceeded expectations by some margin. US economic outperformance has been key and a cornerstone for global markets. This has fuelled exceptional gains in US stocks, with technology again leading the way. Returns currently exceed 25% for the benchmark, broad-based S&P 500, with the tech-dominated Nasdaq rising over 28% with a holiday-shortened week and two trading sessions to go.

The dollar regained its throne towards the end of the year, appreciating sharply for three straight months in the last quarter. The Trump boost and potentially inflationary policies helped the greenback initially in October in the run-up to his victory. A hawkish December FOMC meeting further propelled USD to fresh highs earlier this month. However, risk appetite did wane as official’s new median dot plot for 2025 and 2026 shifted to revel less rate cuts. Tech absorbed a lot of the risk-off moves, with notably Tesla ending its record-breaking run just before the holiday period.

This week sees a few data points to look out for, though markets are not likely to react unduly with volumes much thinner than usual.  In China, PMI data is expected to be unchanged in December following increases in the past two months. Manufacturing activity is currently underpinned by some front loading of exports to the US in anticipation of tariffs next year. Some focus will also be on the US ISM Manufacturing release on Friday. The sector has been struggling across the globe, with the US in contraction since November 2022, save for one print in April this year above 50.

We look forward to a hugely exciting new year with Trump 2.0 expected to bring much volatility and trading opportunities. The US monthly non-farm payrolls report next week (10 January) will be a major release. We wrote last week about the long dollar trade being massively one-sided. The “US exceptionalism” theme has driven markets recently and can continue. But the degree of uniformity in 2025 publications by Wall Street strategists appears to have broken all previous records. That means a lot is baked into markets, certainly until we see Trump’s actual policies. Crowding around core themes tends to exaggerate the scale of markets reactions when things go wrong.

It’s interesting to see that buying momentum in bitcoin and other major cryptocurrencies seems to have stalled after record highs above $108,000. Market sentiment was dampened by Fed Chair Powell’s dismissal of a Strategic Bitcoin Reserve initiative. Indeed, US Bitcoin ETFs saw record outflows of $680m on Thursday 19 December, according to data compiled by Bloomberg.