Investment Commentary - November 2024

Equity markets bounced back in November, delivering their best monthly return in over a year. A decisive victory for Donald Trump and the Republican party in the US election triggered a strong rally for US equities, which recorded fresh all-time highs. This impressive performance for risk assets was supported by ongoing strength in US macroeconomic data, which saw initial jobless claims continue to trend down and consumer confidence measures improve.

While the US election garnered significant attention, there were other political developments taking place around the globe. Germany’s coalition government collapsed, with a snap election expected to take place in February. The survival of the French government was also in doubt as they tried to pass an unpopular budget. Consequently, the Euro was weak over the period and there was haven demand for Eurozone sovereign bonds (less so those of France).

Despite the positivity surrounding the domestic US economy, the strong mandate afforded to president-elect Trump is perceived to be negative for the major trading partners of the US, with a campaign pledge to impose significant tariffs on certain nations, such as the 60% mooted for Chinese goods. Canada and Mexico can also expect similar treatment should future negotiations fail.

With possible future inflationary pressures created by Trump’s campaign promises (tariffs, tax cuts and a crackdown on illegal immigration for example), the Federal Reserve maintained a cautious tone on the pace and magnitude of interest rate cuts. They did cut rates by 25bps at their November meeting but avoided any December cut guidance. Other central banks have been following suit, with the Bank of England cutting by 25bps at their November meeting. The European Central Bank also expects to cut by at least 25bps at its December meeting.

Further rate cuts helped bonds to record positive returns in November, after a weak October. However, the uncertainty surrounding Trump’s policy proposals limited the upside for US Treasuries, which underperformed other major bond markets, returning just +0.9% over the period. Rate cut expectations in the US for next year have reduced as a result, with only three full cuts priced in. The political upheaval in Europe helped Eurozone sovereign bonds to return +2.3%. Gilts also had a solid month, returning +1.8%. The main outlier was Japan, with JGBs in negative territory (-0.7%). The lingering possibility of rate rises and central bank balance sheet reduction continued to weigh on Japanese bonds. Finally, a robust growth outlook for corporate earnings saw credit spreads tighten to multi-decade lows.

Global equities recorded a gain of +3.8% in November, however, there was a degree of variation regionally. US equities were the best performers, with the S&P 500 returning +5.9% and the Nasdaq up +6.3%. US small caps, seen as significant beneficiaries of Trump’s policies, responded strongly to the election result, gaining +11%. Mega cap tech stocks also reacted positively, with the Magnificent Seven returning +9.4%. European equity performance was dragged down by French equities, with the Stoxx 600 only managing a +1.2% return. The FTSE 100 fared slightly better, retuning +2.6%. The notable underperformers were the emerging markets most affected by proposed US tariff measures. The broad MSCI Emerging Markets index was down -3.6% in November.

Most commodities had a down month in November. After a strong run this year, gold had its worst month in over a year, falling -3.7%. Silver fared even worse, losing -6.2%. Copper fell -6%. Oil prices also fell, with WTI and Brent down -1.8% and -0.3% respectively.

In currency markets, the Dollar continued its strong run, with the Dollar index up +1.7% in November. The Euro was the weakest-performing G10 currency, falling by -2.8% versus the dollar. This was its largest monthly decline against the Dollar in eighteen months. Sterling fell -1.3% against the Dollar, but gained by +1.6% against the Euro. The Japanese Yen bounced back slightly against the Dollar, with a gain of +1.5%.

All figures quoted are local currency returns (and USD returns for commodities).