Weekly Market Update -3rd December 2024

Last week saw Americans celebrate Thanksgiving and indulge in Black Friday, with the latter offering a potential litmus test on US retail confidence.

According to Mastercard SpendingPulse, Black Friday retail sales were 3.4% higher than last year overall1. Online retail sales made up the bulk of the increase, as Mastercard reported in-store sales up just 0.7%. US consumers being happy to spend suggests a level of confidence among the populace, although it should be noted that these figures are not adjusted for inflation.

On the topic of inflation, last week the US Commerce Department revealed personal consumption expenditures (PCE) rose 2.3% in the 12 months to October, up from 2.1% in September. The Fed uses this figure as part of its interest rate calculations, and therefore a rise is notable. That said, it remains close to the Fed’s 2% target.

Outside of Black Friday, Thanksgiving and Donald Trump took up much of the rest of the news cycle.

Looking at the latter, Trump made public a range of potential tariffs. The first came in the form of a possible 25% tariff on Mexican and Canadian imports.

It’s worth noting that the US-Mexico-Canada Agreement (USMCA), which Trump signed in 2018, and has shaped North American trade since, is due for renewal in 2025. Therefore, it’s possible these tariff threats are part of an aggressive negotiation stance.

Mark Dowding, Chief Investment Officer at BlueBay, also suggests these tariff proposals might be being made with one eye towards future immigration conversations with Mexico, and the other towards adding pressure on Canada’s Prime Minister Justin Trudeau, as the Canadian goes into an election year. Overall, Dowding notes: “The market consensus appears to be that Trump’s bark is worse than his bite, and that it’s possible to look through his comments without taking them at face value.”

Outside of the tariffs, Trump also announced his nomination of hedge fund manager Scott Bessent for Treasury Secretary.

Given his background, Bessent is viewed as a market friendly operator who is likely to prioritise economic stability. This will be welcome news for those concerned about the possible impact of Trump’s future economic policy.

This helped the S&P 500 and NASDAQ increase 1.06% and 1.13% over the week. However, the biggest move came from the smaller companies universe. The Russell 2000 index (the smallest 2,000 companies in the Russell Index) marched into record territory, moving beyond the level first set three years ago.

Turning to Europe, a deteriorating political situation in France hampered markets. Prime Minister Michel Barnier holds a tenuous grip on power in Parliament, with significant blocks to his left and right. Far right National Rally leaders had called for a series of budget concessions, in exchange for not backing a likely no confidence motion against his government. On the other side, left wing members of Parliament could well trigger a vote of no confidence if Barnier uses constitutional powers to force a social security financing bill through.

With so much political uncertainty, it is unsurprising that French equities lost ground over the week. However, overall, the MSCI Europe ex. UK Index made a modest 0.3% gain.

The FTSE 100 also increased by 0.3%, led by gains for retail and property stocks, with the latter helped by growing property prices. According to Nationwide, house prices increased 1.2% month-on-month in November. The building society reported that house prices are now just 1% below their all-time peak.

BlueBay is a fund manager for St. James's Place.

Source

1 Mastercard SpendingPulse, 02/12/2024