US election market trends, global stock valuations and the rising yield differential
This week's chart pack covers the following topics:
How US stocks react to presidential elections
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
This two-panel chart shows the historical performance of the S&P 500 from Election Day through Inauguration Day and into the early days of each new US administration. The top panel shows market trends when a Republican candidate wins, with shaded red and pink areas above and below to indicate variability in performance. The lower panel mirrors this for Democratic victories. By charting these periods, we can observe any patterns or anomalies in market response based on the winning party. ?
Behind the data
A central question during presidential elections is how the stock market would react to the outcome. For example, following Trump’s election in 2016, Bitcoin, equity futures and the US dollar experienced notable increases. This chart takes a broader view, focusing on market performance not only in the days immediately following the election, but also through the first 75 trading days of a new administration. Historically, when Republicans assume office, the S&P 500 has often shown an initial uptick until Inauguration Day, sometimes followed by a modest correction. Will history repeat itself this time around?
US mortgage rates heat up
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
Behind the data
After the Great Financial Crisis, interest rates reached all-time lows, with US mortgage rates following suit. Between 2012 and 2021, the 30-year fixed mortgage rate remained near historic lows due to prolonged low-rate policies. However, post-pandemic economic recovery and the Federal Reserve's aggressive rate hikes subsequently pushed mortgage rates sharply higher. With ongoing inflation concerns, geopolitical tensions and burgeoning US debt, it is unlikely that mortgage rates will return to pre-pandemic lows. Instead, we may be entering a period where rates resemble levels seen in the early 2000s.
UK-Germany bond yield gap hits 20-year high as economic risks diverge
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
This chart compares the yield-to-maturity of 10-year government bond benchmarks for the UK and Germany from 2005 to present. The top panel shows the yield levels for each country, while the bottom panel illustrates the yield spread between the two, capturing the difference in yields over this period.
Behind the data
The recent UK budget release triggered a sharp market reaction, causing the pound to drop sharply and pushing UK gilt yields higher. Meanwhile, Germany faced its own headwinds, including sluggish growth and energy constraints.
Since early 2023, the spread between UK and German 10-year bond yields has widened significantly, reflecting diverging perceptions of economic and fiscal stability. Currently at a 20-year high, this spread suggests that investors see increased economic risk in the UK relative to Germany, pricing in expectations of higher inflation, fiscal strain and potential currency pressure specific to the UK’s outlook. ?
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