Written by Dominic Williams
This past week, markets have been navigating the implications of Donald Trump securing another term as US President. With President Trump beginning to shape his administration, his policies are expected to maintain a focus on protectionism, deregulation, and tax reform, continuing the themes of his previous term.
In the US, the S&P 500 Index saw a modest decline of -2.0% in local currency terms. However, the strengthening US dollar turned this into a slight gain of +0.4% in GBP terms. The US dollar strengthened significantly, rising +2.4% against Sterling this week and gaining +6.0% over the month. Smaller, domestically focused companies performed worse, with the Russell 2000 Index down -1.6% in GBP terms. Healthcare stocks were particularly hard hit on both sides of the Atlantic, following Trump’s nomination of Robert F. Kennedy Jr. – a known vaccine sceptic – as the next US Health Secretary.
The possibility of renewed trade tensions weighed heavily on China. Trump’s foreign policy appointees have reiterated his tough stance, with proposals to impose tariffs exceeding 60% on Chinese imports. These developments weighed on investor sentiment, causing the MSCI China Index to drop -3.8% in GBP terms.
European markets also felt the pressure of potential US tariffs, with the MSCI Europe ex-UK Index slipping by -0.3% in GBP terms. Concerns about how tariffs could impact European manufacturers dampened investor confidence further as Trump’s administration signalled a more combative approach to trade.
In the UK, GDP growth figures for the third quarter were disappointing, showing an increase of just 0.1%, below the consensus forecast of 0.2%. This slowdown highlights the challenges facing the UK economy amidst weakening momentum in key sectors. Sterling bonds remained largely stable, measured by the Bloomberg Sterling Aggregate index, dipping by only -0.1% over the week. Meanwhile, unemployment figures delivered another unwelcome surprise, climbing to 4.3% in September, above the expected 4.1%. This uptick indicates mounting pressures in the labour market, particularly as economic growth falters. However, it’s important to note that these unemployment figures rely on survey data, which has seen declining response rates recently, warranting cautious interpretation.
In the US, inflation data released midweek revealed a 0.2% month-on-month increase, in line with expectations, while annual inflation rose to 2.6%, up from 2.4% the previous month. Certain components of inflation continue to weigh heavily on the overall figure. Shelter, which includes Rent and Owners’ Equivalent Rent, remains high. However, these metrics are heavily lagging indicators and may not accurately reflect current housing costs. Speaking on Thursday, Federal Reserve Chair, Jerome Powell indicated no urgency to lower rates further, a stance that weighed on bond markets. As a result, US long-term bonds, as measured by the Bloomberg US Treasury 20+ Years Index, fell by -2.6% over the week in USD terms.
Amid global market volatility, maintaining a well-diversified multi-asset portfolio remains essential for effectively managing risk.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 18th November 2024.
