Markets were jolted to life in November by the re-election of Donald Trump to the US Presidency. The Republican party completed the ‘red sweep’, by winning control of both the Senate and the House of Representatives. Although betting odds had Trump as the favoured candidate to win on the eve of the election, control of both sides of Congress led to sharp moves in markets. Trump’s stated policies, of tariffs, a reduction in the corporate tax rate and further expansion of fiscal deficits served to boost both US stocks and the dollar. US bonds sold off initially on concerns over the growing deficit, but then rallied when President elect Trump announced his intention to appoint Scott Bessent as Treasury Secretary.
Equity market returns were strong overall, led by the US which rallied 7% in sterling terms. Other regions were more mixed, as they digested the news that tariff policy had become more likely under Trump. European and emerging market stocks were negative, down 1.5% and 2.5% respectively. Our decision to be overweight the US stock market, as the strongest performing region from an earnings and macroeconomic perspective, added value. A holding in the Xtrackers Equal Weight ETF, which equally weights all stocks within the S&P 500 was the strongest performer over the month.
Fixed income performance was positive over the month, as central banks continued cutting rates during November. Both the Bank of England and the Fed cut rates by 25 basis points, but this positive news was partially offset for bonds with the election of Trump, whose policies will likely increase the deficit. We continue to hold positions in inflation linked bonds, which provide resilience if inflation does prove stickier as a result of Trump’s policies.
Diversifying assets were once again flat, exhibiting low correlation to equity and bond markets. Within diversifying assets, a position in the Yen added value, as despite broad dollar strength, the Yen, which is attractively valued, outperformed. rate cuts from the Bank of England.
