By Bas Kooijman, CEO and Asset Manager of DHF Capital S.A
U.S. equity markets closed the final full trading week of the year with mixed performance, reflecting a balance between economic uncertainty and easing inflation pressures. Smaller companies underperformed, with the Russell 2000 declining, while technology-heavy indexes showed modest resilience. Investor sentiment early in the week was cautious, driven by concerns around elevated valuations in the artificial intelligence sector and mixed economic data.
Labor market figures sent mixed signals. Job growth rebounded in November, supported mainly by healthcare and construction hiring, following a sharp decline in October that was heavily influenced by temporary government job losses. However, the unemployment rate rose to its highest level in over four years, reinforcing the view that the labor market is gradually cooling.
Inflation data provided a more optimistic counterbalance. Consumer price growth slowed more than expected, with core inflation reaching its lowest level since early 2021. Notably, housing-related inflation also eased, which investors welcomed as a sign that broader price pressures may continue to moderate. Equity markets responded positively to the data, helping indexes recover some losses later in the week.
In fixed income markets, U.S. Treasury bonds performed well as yields declined following the Federal Reserve’s recent interest rate cut. Municipal bonds and high-yield debt lagged Treasuries, although investor sentiment toward riskier credit improved after the inflation report. Overall, U.S. markets appear to be closing the year in a cautiously optimistic stance, supported by easing inflation but tempered by signs of slower economic momentum.
Europe: Central Banks Hold Steady as Growth Outlook Stabilizes
European equity markets posted solid gains over the week, supported by expectations of looser monetary policy and signs of steady economic growth. Major regional indexes ended higher, reflecting improved investor confidence despite lingering economic challenges across the continent.
The European Central Bank kept interest rates unchanged for the fourth consecutive meeting, signaling that policy remains appropriately positioned for current conditions. While no immediate changes were announced, policymakers emphasized a data-driven approach going forward. Updated economic forecasts pointed to moderate growth over the coming years, with inflation expected to gradually move closer to target levels before stabilizing.
In the United Kingdom, the central bank took a more decisive step by cutting interest rates. The move followed a sharper-than-expected slowdown in inflation and further weakening in the labor market. Rising unemployment and slower wage growth reinforced expectations that borrowing costs may continue to decline gradually, offering potential relief to households and businesses.
Elsewhere in Europe, central banks in Sweden and Norway kept rates on hold, signaling caution as they balance slowing growth against persistent inflation risks. Overall, European markets benefited from a growing belief
that monetary tightening cycles are nearing their end, even as policymakers remain vigilant. The region enters the new year with improving market sentiment, but continued dependence on economic data to guide policy decisions.
Global Markets: Japan Tightens Policy, China Faces Growth Challenges
Outside the U.S. and Europe, market performance was more uneven. In Japan, equity markets declined, largely reflecting weakness in technology stocks and investor caution following a significant monetary policy shift. The Bank of Japan raised interest rates to their highest level in three decades, marking another step in its gradual move away from ultra-loose policy. While the hike was widely expected, limited guidance on future rate increases weighed on investor confidence and contributed to a weaker yen.
Economic data from Japan supported the case for further normalization, with inflation remaining elevated and exports showing strong growth. However, uncertainty around wage trends and the pace of future policy changes continues to influence market sentiment.
China’s markets also faced headwinds as new economic data highlighted ongoing weaknesses in domestic demand. Retail sales growth slowed sharply, investment declined, and industrial output missed expectations. While exports remain a key support for the economy, analysts noted that consumption continues to lag despite policy efforts. Recent government communications suggest that China is unlikely to introduce aggressive new stimulus in the near term, instead maintaining its current growth strategy.
Taken together, global markets reflect a landscape shaped by diverging economic paths. While inflation pressures are easing in many regions, growth momentum remains uneven, reinforcing the importance of careful policy management as economies move into the new year.
Looking Ahead –
As markets move into the new year, investors will remain focused on how central banks balance slowing growth with easing inflation across global economies. While regional conditions continue to diverge, improving inflation dynamics and cautious policymaking are shaping a more measured outlook for global markets