Weekly Commentary
November 08, 2024
Market euphoria following a resounding Republican victory in the November 5 general election continued throughout the week, as stocks posted all-time highs, and by Friday, the benchmark S&P 500 Index was testing the 6000 level.? Following the result early Wednesday, Trump has already given investors a taste of what to expect—a possible resolution in Ukraine, the naming of his chief of staff, as well as a more hardline stance with regards to Iran and China.? Look for the world to de-globalize and international trade to suffer, or at least be under threat, not just in the US but in other important regions, including Europe.? Just a day following the US election, the German government has essentially collapsed as the ruling coalition was dissolved. This could not come at a worse time for the continent, especially given the looming challenges under a Trump administration.??
Meanwhile, the Fed met this week and on Thursday announced a 25-basis point cut in the Fed funds rate, even though longer term rates have been rising, with the 10-year rate hovering at the 4.30% level. But it is worth pointing out that rates have moderated following the rise to above 4.40% on Wednesday. Nevertheless, the market is pricing in a more pro-growth scenario following the Trump victory, which also implies higher inflation expectations, which would imply less room for Fed cuts going forward.? Currently, market expectations are for another 25-basis point cut in December, but there is more uncertainty for 2025.? We expect rate volatility to remain elevated as Trump's policies are rolled out and prefer to remain cautious on duration due to this.??
Regarding stocks, the sectors we had highlighted in previous weekly commentaries performed as expected, with energy, small and mid-caps, as well as financials being the biggest beneficiaries this week.? Also, Fannie and Freddie had very strong performance on the expectations of privatization (as highlighted previously).? Look for the Russell 2000 especially to be an outperformer, given that it would benefit the most in a de-globalized world.??