December 2, 2024
The highlight for the month of November, as expected, was the 5th of November US Elections. The movement in the markets had started even before this historic date as the survey results started showing the growing strength of red (Republicans) over blue (Democrats). Following Donald Trump’s victory in the elections this became the primary driver of market performance for the month. The “Trump trades” got wings and soared with all might. Donald Trump’s presidential win, coupled with the Republican party securing a majority in both chambers of Congress, fueled expectations that the new administration’s policies would further reinforce “America first” in the economy and markets. Anticipations of additional tax cuts, expansionary fiscal policies, government deregulation, higher tariffs and a more nationalist approach to trade helped boost US equity markets. US small-cap stocks, particularly those with domestic exposure, were seen as the main beneficiaries, rising by 11% during the month. The S&P 500 posted its best month of 2024, rising nearly 6%, closing the month at all-time highs breaching the 6000 level.
However, outside of the US, the election results were met with some caution. Emerging markets lagged developed markets, with Chinese equities declining due to fears of potential future trade conflict and concerns that the previously announced bazooka support measures were not enough to address the ailing domestic real estate. Overall Global equities overall rose by 3.8% for the month. The expectation that Trump’s fiscal policies could be inflationary and potentially end the Federal Reserve’s rate-cutting cycle led to the strongest consecutive monthly gains for the dollar. Against this backdrop the US bond yields rose, and inflation premiums increased. Commodity returns were modestly positive, influenced by profit-taking in precious metals and growing concerns over gas supply. Bitcoin had another incredible run, soaring from USD 67K levels before elections to flirting with USD 100K through the month.
The macroeconomic data in November remained mostly supportive of markets, though it indicated that the Federal Reserve is not yet fully out of the woods with regard to inflation. The Consumer Price Index (CPI) met expectations (+0.2% month-over-month, +2.6% year-over-year), and October’s headline retail sales came in stronger than anticipated (+0.4% month-over-month), with notable upward revisions to September’s data (+0.8% vs. 0.4% previously). The Q3 2024 GDP reading was unchanged from the initial estimate, showing a growth rate of 2.8%. The Fed’s preferred inflation measure, the PCE Price Index, showed slight disinflation (+0.3% month-over-month, +2.3% year-over-year), aligning with economists’ expectations. Personal income rose by 0.6%, surpassing forecasts, while spending saw a modest increase. Labor data, including both initial and continuing claims, remained consistent with a healthy, though slowing, labor market.
On the days following the US Elections, the FOMC met for their policy meeting and continued with the ongoing normalization of monetary policy. The FOMC unanimously voted to reduce the target range for the federal funds rate by 25 basis points, bringing it to 4.50-4.75%. Federal Reserve Chair Jerome Powell highlighted that the US economy was performing exceptionally well, with the labor market “normalizing” and inflation showing signs of cooling, trends that he anticipated would continue. Chair Powell also reiterated that, as in the past, policy decisions remain data-dependent, and future rate adjustments will be made on a meeting-by-meeting basis.
November saw the Bloomberg Global Aggregate Index hedged in dollars increase by 1.2%. Bond markets showed positive performance in both Europe and the United States. The strength of the US economy and President Trump’s election were viewed as potentially inflationary, leading to rising US bond yields. However, yields later retreated to pre-election levels as key financial appointments, particularly Scott Bessent to the Treasury, signaled a less aggressive stance on deficit policy. The yield of the 10-year U.S. Treasury closed the month at 4.17%, down from 4.42% at the end of the previous week and a recent intraday high of 4.50% on November 15. The selection of Scott Bessent as Treasury Secretary was met with a positive market response, thanks to his hedge fund experience and his backing of tax reform, deregulation and potential avoidance of severe tariffs and undue market volatility. As a result, market expectations for monetary policy were moderated, with only three rate cuts anticipated by the Fed through the end of 2025, compared to eight expected at the end of September. In the corporate bond market, solid outlook for corporate earnings has kept credit spreads at their lowest levels in 26 years leaving little room for further compression. Significant rallies were seen in US high yield (HY) where spreads ground even tighter, to historical lows. The sector has been influenced by Trump’s expected pro-business policies and tax cuts aimed at stimulating growth. In contrast, European HY widened as spreads were impacted by the political turmoil in France and structural economic challenges in Germany. Convertible bonds benefited from the equity market tailwind.
US stocks saw significant gains in November. With Donald Trump emerging as the clear winner in the US Presidential election, markets were lifted by hopes that his proposed policies will drive economic growth, reduce taxes, and decrease regulations. In addition to Trump’s victory, the Republican Party also secured control of Congress, which could ease the passage of his campaign initiatives. U.S. equities staged a broad-based, post-election rally in November as all the major indices notched new highs. The S&P 500 posted its best month of 2024, rising nearly 6%, closing the month out at all-time highs. Smaller US companies performed particularly well, driven by the belief that those with a domestic focus will gain from Trump’s policies. The rotation seen in July, with the Russell 2000 significantly outperforming the Nasdaq 100, materialized again, echoing the 2016 election with a 10.8% return for the small-cap index, while the technology index posted a 6.2% return.
From a sector point of view, performance was mixed, with financials and consumer discretionary outperforming energy and healthcare since 5 November, the date of Trump’s election. The top performing sectors included consumer discretionary and financials. Within consumer discretionary, certain automakers and retailers posted strong gains, while in financials, banks benefitted from expectations of a more relaxed regulatory approach under Trump. The weakest sectors were healthcare and materials. Overall Growth stocks (+5.3%) slightly outperformed, while the value segment (+3.9%) was held back by weakness in the healthcare sector, where concerns over the administration’s more adversarial stance toward the pharmaceutical industry weighed heavily. While the appointment of Scott Bessent to the Treasury was positive for the Bond markets, the nomination of Robert F. Kennedy Jr. for Health and Human Services stirred uncertainty in the healthcare sector, causing the S&P 500 Biotech Index to drop more than 7% following the announcement. The Q3 Corporate earnings results also continued to support markets. According to Bloomberg data, the average upside beat was 6.91% for the quarter while sales increased by 1.31%. The earnings growth rate stood at +8.17% while sales growth rose 5.08%. FactSet notes that analysts are predicting low double-digit earnings growth in Q4’24 (which would mark the best performance in three years), with expectations of double-digit earnings growth for all four quarters next year.
US equity markets were a standout in November, except for the UK, other developed market indices posted negative performance, reinforcing the notion of American exceptionalism. Domestically focused UK equities rose over the month, helping to recoup some of the losses suffered in the immediate wake of the October Budget. The prospect of additional tariff hikes on US imports weighed heavily on Chinese and European equities. Europe underperformed once again due to renewed political instability in France and Germany, where the ruling governments lost the majorities required to implement their policies and budgets. Economic data from the eurozone continued to point to weakness. The flash HCOB composite purchasing managers index (PMI) fell to a 10-month low of 48.1, with both the services and manufacturing sectors showing contraction. The MSCI World Index (in dollars) overall rose 4.5% in November, driven by strong US equities, with the S&P 500 gaining 5.7%, compared to a 1.0% increase for the Stoxx Europe 600 index (in local currencies). The Swiss Performance Index dropped 0.2%, while the Nikkei fell 2.2%. Emerging market equities, which had strongly rebounded in September following the announcement of China’s stimulus package, underperformed developed markets with a decline of 3.7%. China’s Hang Seng Index (HSI) dropped 4.4%. The weaker performance of emerging markets was further exacerbated by the dollar’s rebound and the election of President Trump, whose protectionist stance threatens trade relations with China and other countries. Moreover, the lack of clear early signs of an economic recovery in China, aside from retail sales, following the fiscal and monetary measures announced last month, disappointed the markets.
Looking at other asset classes, for precious metals, the price of both gold and silver fell in November. Gold declined after reaching a peak, ending the month at $2,643, down 3.7%. Within industrial metals, aluminum and copper prices fell, while lead, nickel and zinc achieved modest price gains. In energy, the price of natural gas rose strongly in the month. Oil prices edged lower, with WTI at $68, influenced by fluctuating demand, concerns over potential oversupply, and geopolitical risks. On the currency front, the dollar continued to strengthen, driven by the differing monetary policies of the Federal Reserve and other central banks and potential inflationary policies of Trump. It rose 2.8% against the euro and 2.0% against the Swiss franc. The Swiss franc also saw a recovery against the euro, following the loss of parliamentary majority by Japan’s leading party, which reduced the yen’s appeal as a safe-haven currency. Since mid-November, the yen has gained 1.5% against the dollar. The biggest movement seen in this space was in the digital asset industry. After the US election, the broader cryptocurrency market saw positive momentum leading to new all-time highs. Bitcoin gained 37% in November and Ethereum 47%. Many smaller tokens performed even better as altcoins are likely to benefit most from increased regulatory clarity. Trading volumes across exchanges have nearly doubled since their pre election levels and are back to levels not seen since the 2021 crypto exuberance. Trump has promised to make America the “crypto capital of the world”, which is expected to lead, over time, to greater innovation and institutional adoption of blockchain technology and crypto assets in the US.
As the last month of the year rolls on, the market’s attention will now be on the November nonfarm payrolls report. Economists expect the unemployment rate to stay at 4.1%, with 214,000 new jobs added. This report follows a sharp drop in job growth in October, which was just 12K due to the impact of hurricanes and a prolonged strike at Boeing. Over the next week, there will be several Fed speeches ahead of the December 18 FOMC meeting, with Chair Powell speaking on Wednesday. The market expectation is for the Fed to continue with the rate cuts in December and expect a 25-bps rate cut with a 75% probability. The market will also closely watch the rate projections from the Fed going forward.
Overall, 2024 is expected to end as a strong year for many asset classes. However, markets don’t become any easier going forward. Despite the strong positive reaction of US equities and the dollar to Trump’s victory, there remains significant uncertainty surrounding US domestic and foreign policies, as well as the responses of other regions. While an “America First” approach could continue to foster US exceptionalism across asset classes, valuations leave little room for excessive exuberance. Although uncertainties remain, the fundamental strength of the global economy, along with the proactive actions being taken by policymakers, offers a foundation for cautious optimism. It is important to maintain a balanced perspective carefully evaluating risks and capitalizing on opportunities as they emerge.
Only as “dry powder” in the portfolio to take advantage of any potential pull back in the markets to accumulate quality assets. Major Central Banks continue to cut rates reducing the yield on cash.
Private markets could allow portfolios to benefit from sources of returns that are less directional and less correlated than traditional asset classes.
With the complex geopolitical and financial environment, price of precious metals like Gold should remain supported.
