As December begins, we find ourselves reflecting on November – a month that delivered plenty for investors to consider. Markets shifted, responding to economic data, central bank signals, and geopolitical events. With the festive period almost upon us and the year-end hot on its heels, now is the perfect time to take stock of how these things are shaping portfolios.
In this month’s December 2024 Investment Summary, our Chief Investment Officer, Jeff Brummette, reflects on some of the key market themes from November that have helped shape recent movements, as 2025 fast approaches.
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The pain of October’s month end sell-off faded rapidly as equity and bond markets rallied in the aftermath of the Trump election victory.
Source: Bloomberg
Source: Bloomberg
Only Europe and Japan had negative equity market performance. In Japan, this was driven by the unexpected general election that was called and the weak coalition government that followed. In Europe, market weakness stemmed from the abrupt announcement of a general election in Germany scheduled for next February, coupled with fears of tariffs being imposed on European exports by the incoming Trump administration in 2025.
US equity markets reacted enthusiastically to Trump’s election, buoyed by optimism that Republican control of both the House of Representatives and the Senate would allow Trump’s economic plans to be quickly enacted.
His main four goals were to:
1) Lower corporate taxes and renew the expiring Tax Cuts and Jobs Act that he passed in his first term as President.
2) Reduce regulations to stimulate energy production and improve the overall business environment.
3) Impose significant tariffs on imports to encourage US trading partners to deal more “fairly” with the US and, in the case of Mexico, to help restrict illegal immigration at the southern US border.
4) Dramatically reduce illegal immigration and prioritise the deportation of undocumented individuals.
Financial markets have primarily focused on the first two objectives. US equities rallied on the anticipation of lower taxes, stronger economic growth, increased M&A activity, and a more business friendly regulatory environment. So far, the potential negative side effects from tariffs and mass deportations of undocumented immigrants have not influenced the markets.
US markets have outperformed the rest of the world, even when excluding the “Magnificent 7”. This outperformance accelerated in November. The chart below illustrates the ratio of the S&P 500 to the MSCI All-World Index excluding the US, as well as the Bloomberg US Large Cap index (excluding the Magnificent 7) relative to the same MSCI All-World Index (excluding the US). It is difficult to pinpoint what factors will stop or reverse this sustained outperformance of US assets.
S&P 500 and MSCI All-World Index (excluding the US) – November 2024
Source: Bloomberg Finance L.P.
Beyond the impact of Trump, the broader investment environment remains positive. In November, both the US Federal Reserve and the Bank of England lowered rates, suggesting that monetary policy remained tight and further cuts were possible if inflation continues to moderate. Similarly, the European Central Bank has signalled its intention to reduce interest rates further.
Inflation is near target: YoY Change in CPI
Sources: Bloomberg and Oakglen Wealth
Global economic growth remains positive, energy prices continue to decline and labour markets remain tight – a combination that supports continued positive performance in risk assets.
After a challenging few months, fixed-income generated positive returns. Comments from President-elect Trump’s economic team suggested the new administration would not necessarily make the budget deficit larger which encouraged a decline in longer term yields. Meanwhile, economic weakness in Germany pushed European yields lower and favourable, inflation data allowed UK yields to retreat from recent highs.
We remain positive on the investment outlook but anticipate greater volatility due to President-elect Trump’s unpredictable leadership style. In response, we have added exposure to US small cap stocks and increased our holdings in US financials, two areas poised to benefit from lower taxes and regulatory reforms.
We will provide more insight in our upcoming 2025 Outlook.
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Hear more from the Oakglen experts
Our investment team continue to provide interesting and informative content to help keep you in the loop on recent global news and market trends. See below for some key highlights from around the world which our Chief Investment Officer, Jeff Brummette, has recently covered:
Read more:
You can read other articles from the team on our News & Insights page.
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