INVESTMENT NEWS NOVEMBER '24
SPEED READ
- Donald J. Trump will become the 47th President of the United States on January 20, 2025.
- Under President Trump, taxes for companies and households are expected to be lowered, import tariffs will increase, there will be less regulation and European countries will be required (again) to spend more on defense.
- The FED, like the ECB and BoE, cut interest rates by 0.25% and announced that we can expect more rate cuts.
- 2024Q3 US economic growth was +0.7% (qoq) and economic growth in the Eurozone (2024Q3 +0.4%) was also better than expected.
- Oxford Economics expects the global manufacturing downturn, that began in 2022Q4, to gradually end in 2025.
- The increase in government debt since 2008 is worrying. The next crisis therefore seems more likely to be in the public sector than in the private sector.
- Gold and Silver remain the star performers of 2024 and were also among the few assets to deliver positive returns in October.
- In terms of return/risk, Commercial Mortgage-Backed Securities, US High Yield, Emerging Market Bonds and Leveraged Loans are significantly more attractively valued than 7-10yr US Government Bonds.
- UK equities are attractively valued. Chinese equities are interesting for an investor who does not mind high volatility.
ECONOMY
The US elections on November 5 ended in a clear victory for Donald J. Trump, who will become the 47th President of the United States on January 20, 2025. The financial markets were immediately clear about the policies they expect under President Trump. The S&P 500 had its best post-election day since 1928 and the USD and yield on government bonds rose significantly. During his election campaign, Trump already made clear what policies he wants to pursue. Taxes for companies and households will be reduced, import tariffs will be increased, there will be less regulation and European countries will be required (again) to spend more on defense.
Regardless of the election results, the FED, like the ECB and BoE, cut interest rates by 0.25%. In his press conference, FED Governor Powell said that current interest rates are still above “neutral” and that we can expect more rate cuts. This is remarkable considering that both the S&P 500 and house prices are at an all-time high, core inflation has been above 3% for 41 consecutive months at +3.5% and economic growth has been better than expected every quarter. In 2024Q3, US economic growth was +0.7% (qoq) and economic growth in the Eurozone (2024Q3 +0.4%) was also better than expected. In addition, China also seems to want to significantly stimulate the economy fiscally in 2025. Oxford Economics therefore expects the global downturn in the manufacturing sector that started in 2022Q4 to gradually end in 2025. The sharp increase in government debt since 2008 is worrying. The next crisis therefore seems more likely to occur in the public sector than in the private sector.
Financial Markets
Gold and Silver remain the star performers of 2024 and were also among the few assets to post positive returns in October. Concerns about inflation and ever-increasing government debt led to significantly higher yields on government bonds. The yield on UST10 rose by 0.5% in October.
The ever-increasing government debt and persistently high inflation is a combination that causes investors to demand ever higher interest rates from governments, which are therefore confronted with ever-increasing interest costs. In terms of return/risk, Commercial Mortgage-Backed Securities, US High Yield, Emerging Market Bonds and Leveraged Loans are significantly more attractively priced than 7-10yr US Government Bonds.
If we look at the stock markets in the same way, we see that although optimism about the US economy and stock market currently dominates, there are also stock markets that are significantly more attractively valued. For example, shares in the UK are particularly attractive and Chinese shares are interesting for an investor who does not mind high volatility and has confidence in the stimulus measures that the Chinese government has recently announced. These measures are also expected to have a positive effect on the prices of many Commodities.
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