The Australian sharemarket edged 0.12% lower last week, as markets cooled off from the highs of the post-election rally the week prior. Mining stocks were the worst hit last week, tracking a fall in the price of iron ore (-1.5%), as China disappointed with weaker than expected stimulus measures, causing the Materials sector to drop 5.5%. On the other hand, the Information Technology and Financial sectors rallied later in the week, softening losses. Xero (9.1%) was a standout, after the company recorded a 51% increase in operating earnings for the first half of the year.
US sharemarkets declined last week, as the S&P 500 and NASDAQ retreated from record highs. Throughout the week, earnings season wrapped up as markets processed mixed economic data. The October Consumer Price Index met expectations for both core and headline measures, with annualised rates aligning with forecasts. Retail sales showed strength, especially in electronics and automotive sectors, and slightly beat market expectations. Losses were seen within the Information Technology sector, as Meta Platforms (-6.0%), NVIDIA (-3.8%) and Microsoft (-1.8%) all lost ground. Elsewhere, the Health Care sector dropped 5.5% and the Materials sector shed 3.3%, while the Financials sector bucked the downward trend to add 1.4%. US Federal Reserve Chair Jerome Powell comments last week maintained a cautious tone, stating the economy was not showing signals the Fed is in any hurry to lower rates at the next meeting.
European sharemarkets declined for a fifth consecutive week, with the STOXX Europe 600 under pressure from ongoing uncertainty surrounding Trump’s re-election. Within the sectors, Financials, Energy, and Utilities outperformed, benefitting from European Central Bank rate cut expectations and rising EU gas prices, while Healthcare, and Basic Resources lagged. As a result, Deutsche Bank added 2.5% and Barclays increased 1.4%, while HSBC Holdings rose 2.4%. As earnings season draws to a close, company earnings continued to show resilience in Europe, despite many expressing caution in regard to the economic outlook.
Just a week after the election, President-elect Donald Trump has secured a “Red Sweep”, gaining control of both the House and Senate. Before the election, most political commentators had expected a Trump win but with a divided Congress. A Harris victory with a split Congress was also seen as likely. With a divided Congress, either candidate would have faced challenges in passing controversial policies, providing more balance in the world’s largest economy.
Under that scenario, with inflation under control, the U.S. Federal Reserve (Fed) might have continued cutting interest rates down to 3.00-3.50%, from the current 4.50-4.75%, a move financial markets would have welcomed.
However, now that Trump has full control, the Cutcher & Neale Investment Committee has outlined a list of potential implications and market reactions below. It is worth noting that this is a fluid situation, and developments will continue to shape the outlook as we gain clarity on Trump’s specific policies.
With the “Red Sweep”, financial markets must anticipate Trump’s likely agenda, which may lead to higher inflation and a Fed less inclined to cut rates. This could result from Trump’s use of tariffs, implementation of lower tax rates, or restrictive immigration policies.
The Cutcher & Neale Investment Committee is ready to navigate this dynamic environment, balancing short-term gains with strategic caution in sectors exposed to regulatory and trade shifts. Please reach out to your advisor if you would like to discuss further.
Locally, the focus will be on communication from the Reserve Bank of Australia, where we will hear from Governor Michele Bullock on Thursday, in addition to the minutes from the latest policy meeting earlier in the week. On Friday, we will get a read into the services sector with the latest Purchasing Managers Index (PMI) data.
Overseas, the US will receive housing, manufacturing and PMI data. While China is expected to keep their 1 and 5 year Loan Prime rates on hold.