Weekly Buzz: ❄️ The bear market that never was

5 minute read

It's been a long winter for bearish investors – and in recent years, their caution hasn't paid off. While some predicted doom and gloom, bullish investors have proved far more successful. Let's take a look at why the much-anticipated US recession never did materialise.

Where’s the recession?

The S&P 500 and Japan's Nikkei 225 have shown remarkable resilience. They recovered from COVID and continued to climb through an aggressive series of US interest rate hikes. Even when a sharp rise in the Japanese yen a few months ago disrupted a popular trading strategy (the "carry trade") and sent global markets lower, the dip was short-lived.

Much of this resilience stems from the lingering effects of stimulus – years of near-zero interest rates, massive bond-purchase programs from central banks, and pandemic-era household payments. And with the US election over, markets have found fresh optimism, this time from Trump's pro-business stance (our full CIO Update covers this).

While the stock market isn't a perfect mirror of the economy, they often move in tandem. When the economy is humming along, company earnings tend to be at their strongest.

Another big factor at play here: productivity gains. A sharper increase in productivity in the US is key for why its stocks have outperformed. This technological edge – now amplified by AI – continues to be a key differentiator, and has been pushing back against recessionary pressures.

As an investor, what’s the takeaway here?

The past few years provide an important lesson: trying to predict the market can be costly. While many investors braced for a bear market that never came, simply staying invested has proven to be the winning strategy.

It’s better to focus on building a diversified portfolio that can weather various market cycles. Our General Investing portfolios offer this foundation through global exposure across multiple asset classes. And for a more hands-on approach – perhaps to capture opportunities across the US economy's diverse sectors – our Flexible Portfolios let you customise additional exposure.

📰 In Other News: ✂️ Double rate cuts with a side of caution

The US Federal Reserve (Fed) delivered its second interest rate cut of the year – a more modest quarter percentage point reduction. Despite some softening in the job market, the US economy's overall resilience has given the central bank room to take a measured approach.

But there’s a lot up in the air for next year. The president-elect's proposed trade policies – a 10% blanket tariff on imports and a 60% tax on Chinese goods – could push the average tariff to 17%, according to Barclays. That's a level not seen since 1935, and one that would drive up consumer prices and challenge the Fed's inflation management.

Across the pond, the Bank of England (BoE) followed up with its own cut – also its second for the year. The decision wasn’t too surprising, with UK inflation falling to a three-year low in September. The BoE also warned that the recent UK government budget could push inflation higher moving forward. On the flip side, it could boost the country’s economic output by 0.75% over 2025. This mix of potentially higher inflation and stronger growth has the BoE taking a cautious stance – suggesting no further rate cuts until next year.

These articles were written in collaboration with Finimize.

🎓 Simply Finance: Bulls versus bears

In the investment world, bulls and bears represent opposing views on market direction, but there's a clever way to remember which is which: think about how these animals attack. A bull charges upward with its horns – optimistic investors who believe prices will rise. A bear swipes downward with its paws – pessimistic investors who expect prices to fall.