By Jan Faure
Global markets were mixed in November as global economic and geopolitical events had varied yet significant impact across asset classes and currencies. US equities gained most as Donald Trump’s election win was perceived as positive for Corporate America. Emerging markets were weaker, weighed down by the prospect of increased trade tariffs for exports under Trump’s administration. Commodity prices weakened as the US dollar strengthened on the prospect of higher inflation and interest rates under the new administration.
In the US, the S&P 500 gained 5.7% while the tech-heavy NASDAQ Composite surged 6.2%, outperforming other regions by a significant margin. Investor optimism was fuelled by expectations that the second Trump administration will bring pro-business policies such as tax cuts, deregulation, and tariffs, which are expected to boost economic growth and corporate earnings in the US. Expectations for de-regulation boosted US financials and the energy sector, while the industrials sector was seen as one of the main beneficiaries from tax cuts and trade policy.
Outside of US markets, the election result was met with caution. In Europe, the Euro Stoxx 50 declined 0.5% for the month as rising geopolitical tensions and the threat of Trump tariffs weighed on sentiment. In Asia, equity markets in China and Hong Kong came under pressure on concerns over future trade conflict as well as doubts that China’s recent economic support measures will be sufficient to overcome domestic real estate and consumer confidence crises.
Central banks continued to lower interest rates during November. The Bank of England cut its policy interest rate by 25 basis points to 4.75%. The US Federal Reserve (Fed) lowered the federal funds rate by 25 basis points to a target range of 4.50%-4.75%. Progress on the inflation trajectory and recent employment data supported the decision to move towards a more neutral policy stance.
Fed chair Jerome Powell signalled that there is no need for the Fed to rush with rate cuts due to a resilient economy and labour market. Powell said the US economy’s recent performance has been “remarkably good,” giving the Fed room to lower rates at a measured pace. As a consequence, markets have tempered rate cut expectations going into next year.
Looking ahead, there is a high degree of uncertainty about US domestic and foreign policy, and the responses to those policies (especially from China). Despite new found optimism for the US economy and corporates, valuations are looking stretched which may temper returns over the next twelve months. In contrast, equity markets in Europe and Asia are offering far greater relative value but there are noteworthy economic challenges that need to be considered.
Table 1: Global Indicators – Local reporting currencies
