Knowledge Center
Market Currents – 11/12/24
- November Begins on a Dynamic Note. Following a long and eventful political campaign, the US election outcome has provided much-needed certainty and lifted a major source of market anxiety. Stocks responded with a strong post-election rally, as the renewed clarity in political leadership sparked broad-based gains across multiple sectors. Adding momentum to this rally, the Federal Reserve cut its benchmark rate for the second time this cycle, aiming to support sustained economic growth and mitigate any potential headwinds from global uncertainties.
- Yields Surge on Deficit Fears and Fed Uncertainty. Treasury yields jumped in recent weeks, driven by concerns over a widening federal deficit and its potential inflationary impact. Investors also faced uncertainty about the Federal Reserve’s future policy path. The 10-year Treasury rate climbed sharply, from 3.8% at the start of October to 4.3% by month’s end. While rising yields can be a boon for savers, they also place downward pressure on stock valuations, and contributing to increased volatility in the bond market.
- Election Outcome Sets New Course. The 2024 US presidential election has brought a decisive end to months of speculation and uncertainty, with Donald Trump reclaiming the White House and Republicans securing control of the Senate. The outcome of the House of Representatives remains pending, with several races still to be called, though Republicans are optimistic about maintaining a narrow majority. While campaign promises often evolve during the transition to policy, the prospect of a unified government could facilitate the passage of substantial legislation, including tax reforms, deregulation in key sectors, and expanded energy policies. Conversely, more assertive trade tariffs and rising debt levels could pose challenges ahead. Markets are also closely watching Trump’s cabinet appointments for insights into the administration’s policy priorities.
- Global Easing Cycle Takes Hold. Central banks around the world are moving towards a coordinated easing cycle after the years of rate hikes. In October, central banks governing three of the top ten most traded currencies implemented reductions in their benchmark rates. The Federal Reserve furthered this global trend by implementing an additional 25-basis point cut in November, building on its previous rate reduction in September. Simultaneously, China has intensified its stimulus efforts to rescue its flagging economy. These global policy shifts aim to inject liquidity into financial systems, which should support risk assets. However, we remain vigilant about the potential inflationary consequences of these global policy shifts.
- Year-End Market Outlook. The early days of November saw two pivotal developments: the outcome of the presidential election and a second Federal Reserve rate cut. The election results have cleared a major source of uncertainty for the markets, and set the stage for a new administration. As the post-election landscape unfolds, it’s important to refocus on long-term fundamentals, and resist making reactionary moves based on political shifts. We hold a cautiously optimistic stance, supported by resilient economic growth, steady corporate performance, moderating inflation, and an ongoing global monetary easing cycle. However, we remain alert to emerging risks, including rising Treasury yields, which could elevate borrowing costs and dampen market sentiment, along with concerns over high stock valuations.