One for the records, both politically and for the markets. We’ve seen a lot of Volatility as measured by the VIX come out of the markets as we move forward from a very big week for the financial markets. Get my take in this week’s market round-up.
MARKET SOUND-BITES
Markets rose to record highs, as investors wagered Republicans’ capture of the White House and Senate, along with their expected retention of Congress—also called red sweep—would result in faster earnings growth, looser regulations, and lower corporate taxes. The S&P’s 4.66% gain was its best in almost a year (the week ended November 3, 2023) while the DOW had its biggest weekly gain in over 2 years. Also, we saw the VIX fall over 31% which is its largest weekly drop since Dec 2021. A stronger U.S. dollar might offset some of the impact of tariffs on inflation, while lower taxes and some of the deregulatory initiatives under a Trump administration should also support the economy. Currently, the US Share of the worlds’ market cap is around 60% and the US is currently 10 times bigger than any other country. A lot of that growth has come from PE multiple expansion. And finally, Nvidia has now moved into the DOW replacing a long standing member, Intel giving the DOW a heavy dose of growth and AI exposure.
The election overshadowed much of the rest of the week’s economic and policy developments. Following its scheduled policy meeting concluding Thursday, the Feds cut rates by 25 bps, its first easing move since cutting rates by 50 bps in September. The week’s biggest surprise was on Tuesday’s release of the ISM’s gauge of October services sector activity, which came in at 56.0, well above expectations and the best reading since August 2022. Price pressures eased somewhat even as activity picked up, reversing a string of three-monthly gains.
U.S. Treasuries generated positive returns heading into Friday, as yields largely ended lower than where they ended the previous week.
In Europe, worries about the impact of a Trump Administration’s trade policies on European economic growth and central bank policy weighed on sentiment. The eurozone composite PMI was revised higher to 50 in October from an early estimate of 49.7 which indicates that overall business activity was unchanged. Meanwhile in the U.K. the BOE policy committee voted 8–1 to reduce their key Bank Rate a second time this year, by a quarter-point to 4.75%, as inflation continues to decelerate.
In Japan, investor risk appetite was supported by the outcome of the U.S. presidential election and the Federal Reserve’s rate cut. After initially selling off on the U.S. election result, the yen appreciated to around JPY 152 against the USD, from about JPY 153 at the end of the prior week. Market participants speculated that the BoJ could next raise interest rates in January 2025 with minutes from their last meeting showing they could support a rate increase should the economy hit their objectives.
Chinese stocks surged as Beijing’s unveiling of fresh stimulus measures offset concerns about potential U.S. tariff hikes. The PBOC announced a $1.4 Trillion USD program to refinance local government debt, which Beijing has flagged as a key economic and financial risk for the country. On the trade front, exports rose an above-forecast 12.7% in October from a year earlier, up sharply from 2.4% in September, marking the fastest rate of growth since July 2022. While the growth in October’s exports signaled strong demand for Chinese goods—which has been a bright spot for the economy—analysts cautioned that China’s export outlook has grown more uncertain given the possibility of a trade war when Trump takes office in 2025.
Enjoy this week’s market round-up.
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
hpb
