This November 2024 market update is brought to you by Marlborough Investment Management

Investors’ attention has been heavily focused on the US election, the result of which was announced after the month end.

Donald Trump was elected on a platform of tax cuts and deregulation, and US equities rose sharply to hit record highs. However, concerns remain about whether talk of trade tariffs is a policy commitment or simply a negotiating tool.

Elsewhere, the European Central Bank (ECB) announced its third interest rate cut and, in the UK, chancellor Rachel Reeves unveiled a Budget that was not as radical as many expected, but still increased volatility in markets.

The Chinese leadership continued to make policy announcements designed to support the nation’s faltering economy. However, they have disappointed markets, which were looking for greater impact.

UK

Inflation falls by more than expected

After sitting at 2.2% in July and August, inflation fell by more than expected in September to reach 1.7%, the lowest level since April 2021.

Unemployment fell slightly to 4% in the three months to August and wage growth slowed for the fourth month in a row, with an increase of 4.9% year on year.

Lower inflation paved the way for an interest rate cut at the Bank of England’s (BoE) November meeting. The end of the month also saw the announcement of the Budget by Rachel Reeves, which pushed up yields on UK government bonds.

US

Trump victory commands investors’ attention

As mentioned above, Donald Trump’s election victory, announced after the month end, has taken centre stage for investors in the US and internationally.

Meanwhile, inflation was close to the Federal Reserve’s (Fed) 2% target, economic growth slowed but was still positive and although the labour market shows signs of some softening, it remains in a reasonable place.

All this continues to point to a “soft landing” – a gradual reduction in inflation and economic growth that allows the central bank to reduce interest rates and avoid a more severe recession.

Technology companies have continued to deliver strong earnings, although perhaps not matching the lofty expectations of some Wall Street analysts.

Lower demand in China is impacting some of these tech giants, but, overall, earnings in the third quarter appeared to increase.

Europe

A third interest rate cut

The ECB followed interest rate cuts in June and September with another in October, bringing the rate to 3.25%. This had largely been anticipated by the market. The bank continues to focus on a meeting-by-meeting and data-dependant approach to rate decisions.

In terms of data, inflation rose to 2% in October, which was slightly above the expected 1.9% and up on September’s rate of 1.7%. Meanwhile, unemployment remains at an all-time low of 6.3%.

Japan

Election causes political upheaval

The political situation in Japan is uncertain after voters stripped the Liberal Democratic party of its parliamentary majority for the first time in 15 years.

Meanwhile, Japanese companies have reported mixed results this earnings season, with 46% delivering negative surprises. Worker wage growth has slowed but is still in positive territory.

Equity market returns were slightly negative during October.

Asia and Emerging Markets

Stimulus not stimulating sentiment

Asia and emerging market equity indices declined sharply during October. Falls in Indian equities were driven by fears that an escalation of the Middle East conflict could disrupt supplies of oil, a key import for India.

Indian equities were also affected by weaker earnings reports. Shares in China and Hong Kong were also down. Stimulus measures announced by the Chinese government have failed to reassure investors, who remain wary after the property crisis in 2021.

Taiwanese companies were among Asia’s strongest performers, with construction and semiconductor stocks doing particularly well. The latter were pushed higher by positive sentiment relating to demand driven by the growing use of artificial intelligence.

Fixed Income

Déjà vu all over again

October began in a similar vein to the first quarter of the year, with relatively low yields that had been driven down by expectations of a significant and sustained path of rate cuts from the Fed.

However, as the month progressed bond markets lost ground, as US economic data surprised consistently on the upside.