Global and Philippine Market Update

December 31, 2024

Global Markets

Global Stocks ended higher for a second consecutive year, driven by the continued dominance of the tech sector.

• US markets had a remarkable 2024, achieving back-to-back gains of over 20% for the S&P 500, a feat last seen in 1997-1998. Despite a disappointing December, with the Dow dropping over 2,000 points and the S&P 500 sliding 2.5%, the year ended strong. Wall Street's impressive returns were driven by cooling inflation, strong consumer spending, and solid, albeit slowing, job market. Tech stocks surged, especially after President-elect Donald Trump's reelection. The "Magnificent Seven" tech stocks—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—accounted for over 50% of the S&P 500’s total returns. Since November 5, these stocks have contributed over 96% of the S&P 500’s gains, with Nvidia surging 179%. Despite these gains, market breadth was poor, with most S&P 500 companies falling since November.
  
  
• The Federal Reserve (Fed) cut to its key interest rate three times in 2024, reducing it to between 4.25% and 4.5%. The Fed now projects only two rate cuts for 2025, citing low unemployment and somewhat elevated inflation, with a 2% inflation target not expected until 2026. Economists had anticipated three cuts next year, but the Fed's cautious outlook reflects a steady yet cooling economy. Despite this, Fed Chair Jerome Powell expressed optimism about the US economy's performance compared to other countries.
  
  
• The outlook for 2025 is significantly shaped by Donald J. Trump's return to the White House. His pro-business policies are fostering optimism for corporate America and US assets, yet his tough stance on global trade and unpredictability are causing some apprehension. The AI-driven stock boom is anticipated to persist, with gains broadening as technology adoption spreads. However, due to the uncertainty surrounding Trump and US policy, diversification across different asset classes remains crucial for a robust portfolio.

Philippine Stocks

Philippine Stocks achieved modest gains for the first time since 2019.

• The Philippine Stock Exchange Inc. index (PSEi) ended 2024 at 6,528.79 points, up 1.2% from 2023, marking its first year-on-year increase since 2019. Daily average value turnover slightly increased to P6.10 billion, and domestic market capitalization rose 11.2% to P14.57 trillion. Net foreign selling improved to P23.18 billion from P53.65 billion the previous year. PSE president Ramon Monzon highlighted ongoing initiatives to enhance market liquidity and the importance of favorable US economic policies for future growth.
  
  
• Entering 2025, stock market investors are navigating a landscape filled with both opportunities and uncertainties. Analysts have mixed views on the market's direction, influenced by various factors. The PSEi is considered attractive with a low price-to-earnings ratio, suggesting potential for growth, especially if economic conditions improve. However, risks such as low institutional liquidity and retail investors favoring cryptocurrencies over stocks persist. The return of Donald Trump to the White House brings both optimism and apprehension, with his pro-business policies expected to benefit Corporate America, but his tough stance on global trade and unpredictability could create market volatility.
  
  
• The Philippine economy remains robust and is expected to continue its growth trajectory, which should bolster corporate earnings and market performance. The PSE aims to raise P120 billion in capital through various offerings, including high-profile IPOs like Mynt/GCash and SM’s real estate investment trust, which could attract significant investor interest. Although the market is currently on a downtrend, some analysts project the PSEi could reach 7,600, driven by quality stock selection and favorable economic conditions. Overall, while there are significant risks, there are also opportunities for growth. 2025 is a year of cautious optimism for the market, and investors should stay informed and adaptable to changing market conditions.

Philippine Bonds

Philippine Bond yields remained flat and elevated but expected to trend lower in 2025.

• Private sector analysts surveyed by the Bangko Sentral ng Pilipinas (BSP) expect headline inflation to stay within the 2-4% target band until 2026. The BSP's baseline forecasts predict inflation at 3.1% for 2023, 3.2% for 2025, and 3.4% for 2026. The BSP noted that risks to the 2025 and 2026 inflation outlook have shifted to the upside but should remain within target. Reduced tariffs on rice imports are expected to keep inflation low initially, but it may rise towards the upper end of the target range by late 2025 due to base effects. Upside risks include potential electricity rate adjustments and higher minimum wages outside Metro Manila, while downside risks are linked to lower rice import tariffs.
  
  
• Analysts predict that the BSP will implement fewer rate cuts in 2025 to protect against unexpected inflation spikes due to geopolitical tensions. ANZ Research suggests that cumulative rate cuts might amount to 75 basis points (bps) instead of the previously expected 100 bps. The BSP ended 2024 with a third consecutive quarter-point rate cut, bringing the key rate to 5.75%. Governor Eli Remolona Jr. emphasized a cautious approach to easing, citing persistent price pressures from potential transport fare hikes and higher energy prices. The central bank's current policy settings are intended to provide "insurance" against price shocks, with potential easing at the first policy meeting in 2025.

FWD Guidance: Uncertainty leads to downside risks, but diversification and a long-term investment horizon still provide the best chance for financial success.

Sources: (1) https://edition.cnn.com/2024/12/31/investing/stock-market-end-of-year-wrap/index.html (2) https://www.nbcnews.com/business/economy/federal-reserve-interest-rate-cut-december-2024-much-economy-rcna184586 (3) https://www.bloomberg.com/graphics/2025-investment-outlooks/ (4) https://manilastandard.net/business/314542377/psei-closed-above-6500-level-in-2024-despite-foreign-headwinds.html  (5) https://mb.com.ph/2024/12/30/stock-analysts-see-muddled-outlook-for-2025 (6) https://www.bworldonline.com/top-stories/2024/11/15/635071/inflation-seen-within-target-until-2026/ (7) https://business.inquirer.net/498156/shallower-rate-cuts-seen-in-2025

Disclaimer: The purpose of this article is to inform and should not be taken as an advice or offer to purchase securities. Seek professional advice before making a decision based on this presentation. Information given does not represent the views of FWD and its agents and employees.

.