November 2024 MPS Market Review

• Donald Trump completed an historic comeback in November as both he and his Republican Party swept the board in the US Presidential and Congressional elections.
• Though marginal favourite heading into the election, the emphatic result removed any prospect for legal dispute and lingering political uncertainty, offering immediate relief to riskier assets, particularly equities.
• The decisive outcome would also allow markets to focus on Trump’s headline policies, with an expansionary fiscal agenda and ensuing growth impulse seemingly paramount in investor minds.
• Once again US shares enjoyed the most pronounced gains as hopes for more generous taxation policies, coupled with more abrasive international trade policy, raised relative expectations for US Growth versus the Rest of the World. 
• Unlike equities, up to and shortly after the election outcome, the bond market was performing quite poorly as the threat of inflation and less interest rate cuts, driven by demand enthusing tax cuts and tariff induced price increases, became the dominant narrative.
• As the month progressed, however, most sovereign bonds were able to recover any recent capital losses, as accelerated fears of growth retarding trade policies raised interest in the asset class.
• As discussed in a very recent (Invesco) Ben Squared Podcast - https://vimeo.com/invescoemea/review/1035565483/ed25e16800 - it can be very difficult to disentangle trade policy motivations, and the ultimate goal of the incoming administration. An issue made all the more challenging by the constant flow of social media updates from the President-Elect.
• A key question investors want answering is whether trade tariffs form part of a negotiating strategy or if tariffs (and a protectionist wall) are the goal unto themselves? 
• Nominations to the Trump administration fail to clarify this conundrum, with a mix of moderate and hard-line/’MAGA’* candidates looking to take leading roles.
• In the absence of such clarity volatility could well fill the void, however, prevailing conditions are also supportive for equity gains.
• In keeping with prior monthly notes resilient labour markets, ebbing inflation and interest rate cuts point to a more enduring runway for growth and is supportive for equity allocations within portfolios.
• As a result, a choppy but rewarding period ahead remains (on balance) the core expectation for equities.
• Despite this positive framing, however, we’d be keen to stress the risks to equities remain prominent, be that the prospect of recession or resurgent inflationary risk.
• Despite the delivery of lower interest rates, most borrowers will likely suffer an increase in debt service costs at any imminent refinancing event; a dynamic which may yet squeeze the growth out of a (gradually) slowing US economy.
• We would also highlight the risk of resurgent inflation should Trump or the US Federal Reserve push too hard on stimulating the economy.
• In such a setting, we suspect the Federal Reserve would be forced to reverse course (again), swiftly and dramatically raising interest rates to finally see-off the menace of inflation.
• Higher interest rates and bond yields would also act as something of a regulating mechanism upon the government’s own expansionary efforts too, potentially reigning back any considered excess. 
• Such an outcome would threaten a more material downturn for both the economy and stock markets.
• Recognising how uncertain the outlook remains for growth, as well as our philosophical belief in the need for humility when investing, MPS portfolios strive to seek appropriate levels of diversification to meet the investment challenges ahead.
• High quality bonds for example, offer an historically attractive level of yield, and may offer a useful portfolio diversifier in the event of continued disinflation, or perhaps even recession.
• Stay safe, stay well, and please get in touch if you wish to discuss any part of the Invesco MPS strategy further.

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