U.S. election.
One of the largest market events of the year was the U.S. Presidential election. After a strong September, markets took a breather in October as uncertainty around its outcome and future U.S. economic and fiscal policies, pared investor optimism. Once the election results were confirmed, the veil of uncertainty was removed, and investors quickly deployed capital into the equity markets. Post-election investor optimism led to a continuing broadening of the market with segments such as small-caps, financials, and consumer discretionary spending leading the post-election rally in the U.S., as opposed to a concentrated pool of mega-cap and artificial intelligence stocks. This is a healthy development for the equity markets, making market returns less reliant on a handful of names.
Spurred on by potentially lower corporate tax rates and less regulation, markets reacted to Donald Trump’s win with optimism about the future economic and corporate prospects of the United States. Buta high level of uncertainty remains around the impacts the U.S.’s changing trade policy will have on global economic and inflation growth rates. And it didn’t take long for investors to realize that changes were coming.
Proposed tariffs.
On Nov 26, 2024, President-elect Donald Trump announced he would impose a 25 per cent tariff on all goods coming from Canada and Mexico to force the countries to curb illegal immigration and the smuggling of fentanyl into the U.S. He also announced plans to increase tariffs on all Chinese goods coming into the U.S. by an additional 10 per cent, a move expected as the president-elect is likely to continue decoupling the economies of China and the U.S.
A supportive investment climate.
We expect planned U.S. protectionist policies, de-regulation, and lower corporate tax rates to increase the economic growth prospects of the U.S. relative to the rest of the world, but do see potential for added inflationary pressure and a slower U.S. Federal Reserve easing cycle. We expect central bank easing cycles to remain in place but see the potential for long-term interest rates to move higher as demand for capital rises from global fiscal deficits.
While rising uncertainty around the direction of long-term rates, inflation, and proposed changes to U.S. trade policy could pose a headwind to markets, current central bank easing, positive economic and earnings growth forecasts, and the proposed pro-growth initiatives by the U.S. provide a supportive investment climate for equity investing. The broadening out of the U.S. equity market is a healthy development, making future returns less reliant on a few stocks.
