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November – in brief
- The US went to the polls and the result was a Republican victory.
- US bond markets reacted negatively before improving, whilst the equity market just improved.
- The rest of the world has been out of focus and financial markets, generally, out of favour.
It seems like a long time ago already, but the US election was actually in November
There has been a huge amount written and spoken about the US elections since the results were known, so I am going to try not to repeat what has already been written too much. The initial reaction was that with the House of Representatives and the Senate both in the hands of the Republican party, the President would have free reign to push through policy measured freely.
However, the two chambers of the United States Congress are only held by a small majority, and it would not be a surprise if Republican members who didn’t like some of President Trump’s policies voted against them. There are, therefore, limitations to what he can do. This is, arguably, a good thing as it should moderate more radical policy measures.
It’s also interesting how some of the President’s senior appointments have changed opinion on what the future of the US looks like for the next four years. Initially it was thought we would be away to the races with big tax cuts and massive government spending which would lead to very strong economic growth accompanied by rising inflation and interest rates staying higher for longer. But it now looks like those were wide of the mark and government spending will be reviewed and cut where appropriate, overall, a more balanced approach.
However, I think there is little doubt the US economy will be given plenty of stimulus, but until we know more about potential trade tariffs with the rest of the world, it is difficult to make predictions with much certainty on inflation and interest rates.
The US bond market didn’t know what to make of it, but the equity market did
The yield of a bond is the usual way of describing its price (it is the actual price divided by the interest rate paid) and allows for different types of bonds to be compared to each other and also cash deposit rates. As the price of the bond rises, the yield falls and vice versa. The chart below shows the yield of the US 10-year Treasury bond, which is issued by the government and is considered to be a bellwether, over the month of November.
US 10-year Treasury bond yield (31.10.2024 – 30.11.2024)
Source: Bloomberg. The performance information presented on this page relates to the past. Past performance is not a reliable indicator of future returns.
As you can see it jumped up after the election on 5 November before falling subsequently. The moves are also sizable. This reflected the changing views of the Trump administration’s plans; moving from high growth, inflation and interest rates to a more balanced approach.
The equity market meanwhile liked what it saw. The Russell 2000 Index is comprised of the smallest 2,000 US companies and is sensitive to the fortunes of the domestic economy. It jumped by nearly 11% over the month. A stronger economy generally means higher profits, which is good for share prices.
Can we forget about the US for a while now then?
No.
It is the biggest and most important economy in the world and all eyes are now on foreign policy, particularly as it will be applied to global trade and what the approach to the much-discussed tariffs will be with different regions.
The US will stay in the news for a while yet.
The rest of the world took a back seat
Unfortunately, the news flow hasn’t been so good outside the US.
The UK economy is struggling as businesses and individuals digest October’s Budget, with confidence and spending falling. Inflation has remained a little higher than hoped, leading to the expectations for interest rate cuts subsiding. The UK has gone from being one of the best performing major economies to one of the worst.
The Eurozone economy is struggling, with Germany wakening and finding itself in the midst of political instability as a snap election has been called for February. The economy is sufficiently weak that there is a possibility that the European Central Bank could cut interest rates by 0.5% rather than the expected 0.25%. That would be quite a move, but it does highlight the situation.
Equity markets, excluding the US, were modestly lower over the month, but did end in a more optimistic mood.
New year coming
As we approach the end of 2024 thoughts turn to 2025.
Since the Covid-induced mayhem of 2020, at this point of each year I have expressed hopes for a quieter year to follow. Those hopes have been dashed by; periods of resurgent Covid, rampant inflation, major banking collapses, war in Ukraine, then the Middle East, mini-Budget disasters and over half the population of the world voting this year, amongst a long list of other factors that have caused financial markets to move around in a severe fashion.
I suppose it is too much to hope for a calmer 2025.