Weekly recap
What happened in markets
The Australian sharemarket rose 1.6% last week, its best week since mid-August. This came following a busy week of market related news, as Donald Trump was elected as the 47th President of the United States, the US Federal Reserve cut rates a further 0.25%, and investors hoped for further increases to Chinese stimulus measures. The Information Technology led the gains, up 4.1%, while the Financials sector rose 3.6%, after NAB and ANZ posted positive Financial Year results. The Energy sector eked out a 0.1% gain despite weaker oil prices. The RBA held rates steady domestically, with the anticipated timing for the first rate cut now pushed further into next year.
US sharmarkets rallied last week, as the S&P 500 and NASDAQ reached new highs, and the small cap index, the Russell 2000, posted its best weekly gain since March 2020. The US election dominated headlines throughout the week and Trump’s victory led to increased optimism surrounding risk assets, hence the 8.8% gain seen by the Russell 2000 index. Gains were seen in the Financials sector (6.3%), as investors expect regulatory easing within the sector following the election result. In addition, the US Federal Reserve’s November meeting resulted in a 0.25% cut, further adding to the increased investor confidence.
European sharemarkets declined for a fourth consecutive week last week. Trump's US election win drove concerns over European growth and inflation impacts, especially through potential tariffs that may affect European Autos, Chemicals, Banks, and Technology. As a result, the Auto & Parts sector dropped 3.3%, while Utilities shed 2.5% and Health Care dropped 1.9%. During the week, the Bank of England implemented a further 0.25% rate cut, however indicated it will proceed cautiously following the more expansionary budget and ongoing global uncertainties.
Stock & sector movements
What caught our eye
What a week for global politics and financial markets! The Reserve Bank of Australia (RBA) held rates steady at 4.35%, and the US Federal Reserve reduced interest rates by 0.25% to a range of 4.50–4.75%. However, the US election undoubtedly took centre stage, sparking discussions on its vast implications for policy and markets.
Donald Trump's re-election and a potential “Red Sweep” in Congress could usher in substantial shifts in tax, trade, regulatory, and immigration policies. This political landscape, though favourable for short-term market enthusiasm, introduces uncertainties across various sectors, both domestically and internationally.
- Election Results and Political Composition
The Republicans are expected to hold the Senate and likely the House, enabling a strong policy agenda. This alignment of power positions Trump to enact policies swiftly, though a divided Congress would restrict his agenda to executive actions like trade tariffs.
- Tax and Fiscal Policy Implications
The agenda includes reducing corporate tax rates to 15% and permanently extending the 2017 tax cuts, focusing on lowering individual taxes as well. Such moves could boost US business competitiveness, but at the cost of an expanding deficit that may add pressure to US Treasury yields, which could affect equity returns if borrowing costs rise.
- Trade Policy and Tariff Implications
A Trump administration is likely to heighten tariffs on Chinese imports, with rates ranging from 10% to 60%. This renewed protectionism aims to bolster domestic manufacturing, but risks sparking inflation and increasing supply chain costs. The impact of these tariffs will likely ripple through to consumers and businesses heavily reliant on imported goods.
- Energy and Environmental Implications
Trump’s environmental approach focuses on deregulation. Plans to overturn electric vehicle (EV) mandates and expand traditional energy production, including coal, nuclear, and hydropower, reflect this shift. He also aims to streamline energy infrastructure permits, reduce EPA oversight, and repeal parts of the Inflation Reduction Act. These changes may support energy independence but could hinder progress on emissions targets and climate initiatives.
- Immigration and Labour Market
Immigration reform may be stringent, focusing on reduced migration and increased enforcement. These policies could tighten the labour supply in sectors like agriculture and construction, which traditionally rely on immigrant labour, potentially driving up wages and costs in these industries.
- Global and Geopolitical Implications
International relations could become strained, particularly with China and the EU, as tariffs and a focus on “America First” deepen. This shift may support a strong dollar policy, which could weigh on US multinationals but provide some uplift to domestic industries less reliant on exports.
In summary, while Trump's policies under a Republican-led Congress might initially boost markets through tax cuts and deregulation, the medium-to-long-term effects, including inflationary pressure and potential trade disruptions, may introduce volatility. The Cutcher & Neale Investment Committee is prepared for this dynamic policy environment, aiming to balance immediate gains with strategic caution in sectors exposed to regulatory and trade shifts.
The week ahead
Locally, investors will look for the release of the unemployment rate result on Thursday, a key measure which provides insight into economic health.
Overseas, the UK unemployment rate will be released, while in the US, investors will look toward the release of the Consumer Price Index and Retail Sales data.
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