Omnis Managed Portfolio Service
January 2025 | Monthly update
Market-moving events
UK inflation rises as rate cut hopes fade. The Bank of England kept rates at 4.75%, as inflation rose to 2.6%. Wage growth of 5.2% and a struggling economy, which shrank by 0.1% in October, led markets to reprice 2025 rate cut expectations. Businesses criticised October’s Budget for deterring investment, while job cuts accelerated to their fastest pace since the pandemic.
Euro area growth weakens as ECB cuts rates. The ECB cut rates by 0.25 percentage points to 3% in December amid ongoing struggles. Inflation rose to 2.2%, but growth forecasts were downgraded as political instability in France and Germany added uncertainty. The euro weakened, reflecting trade tensions and weak exports, while business confidence was subdued.
US markets dip as inflation lingers. US stocks slipped after the Fed cut rates by 0.25% but signalled slower easing in 2025. Inflation rose to 2.7%, with core inflation steady at 3.3%, keeping pressure on monetary policy. The labour market added 227,000 jobs, but unemployment edged up to 4.2%. Market concerns grew over Trump’s potential tariffs and their impact on inflation.
Investment highlights
A mixed month for markets. US stock markets were weak, while Japan was notably strong. Large caps outperformed small caps as markets priced in fewer rate cuts for 2025. Growth stocks outperformed value driven mostly by large-cap tech outperformance. Government bonds outperformed corporate bonds, but fixed income as a whole struggled over the month
Tactical asset allocation. Rate cuts should pave the way for out-of-favour asset classes to come back into favour, including value, small cap and sovereign debt. Investors are already tilting their portfolios to these areas. Our diversified portfolios hold all these asset classes and we’ll continue to make tactical decisions to capture opportunities we identify.
We remain cautiously positioned. We have an overweight allocation to bonds and slight underweight in equities. Although stock markets have rallied, a weaker economy could put pressure on company revenues. Our central case remains falling inflation, a peak in the interest rate cycle and a soft landing, but with a larger than normal risk of a deeper recession.
Asset allocation
Take a look at our latest asset allocation in the Omnis Managed Portfolio Service.
Issued by Omnis Investments, which is authorised and regulated by the Financial Conduct Authority. Registered address: Auckland House, Lydiard Fields, Swindon SN5 8UB. This update reflects our view at the time of writing and is subject to change. The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your financial adviser. Omnis Investments is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Past performance should not be considered as a guide to future performance. Approved by Omnis Investments on 2 January 2025.
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