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One story dominated the headlines and was the key driver for investment markets in November – the US Election. The re-election of President Trump, along with Republicans taking control in the Senate and House of Representatives sparked significant market reaction. Investors welcomed the orderly result, expecting pro-business policies such as tax cuts and deregulation. However, the potential for increased fiscal deficits and tariffs raises concerns about inflation and global trade tensions.

Trump’s promised tax cuts, particularly corporate tax reductions, are expected to stimulate economic growth by 2026. However, his tariff policies could provoke inflation and a global trade war, dampening global growth and pose risks for Europe and Asia, particularly export-reliant economies. Immigration and foreign policy shifts, including reduced NATO support and possible de-escalations in Ukraine and the Middle East, add geopolitical uncertainty.

Whilst there are concerns that Trump’s proposed tax cuts and tariffs could prove inflationary and lead to a higher for longer interest rate environment, in their November meeting the Federal Reserve voted unanimously to cut rates a quarter percentage point to 4.5%-4.75%. US inflation marginally rose from 2.4% to 2.6% in November, but markets expect the Fed may cut in December. However, consensus is now that there will be just three 0.25% rate cuts before the end of next year.

UK inflation also picked up in November (from 1.7% to 2.3%), but the Bank of England cut interest rates by 0.25%. However, they warned that inflation could creep higher due to measures for increased public spending announced in the Budget. Latest figures show the UK economy going nowhere fast with PMI figures dropping below 50 indicating a contracting economy and GDP growth was 0.1% over the third quarter. The European Central Bank followed suit with a 0.25% rate cut to 3.25%, as slowing growth outlook subdued inflation provided hopes of a quicker pace of policy easing in 2025.

As we reach year end it feels like the focus will remain on what Trumponomics 2.0 will look like. It’s still almost two months until the inauguration, so much could happen, but it does feel that there is now little chance of US recession and the US will be the driver for global growth. Although rates are likely to continue to fall, the likelihood of a “higher for longer” rate environment has increased, and the unpredictability of Trump policies may lead to more volatility over the coming months. There is likely to be plenty of ‘noise’ from Trump regarding his intentions which may increase volatility. (In his previous term he sent 25,000 tweets). However, politics is rarely the key determinant of market direction over the medium term and markets have been playing the Trump trade for several weeks and there has been significant re-pricing across asset classes both positive and negative.

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Market Watch

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Looking at stockmarkets first and the dominance of the US in global equity benchmarks was highlighted by the MSCI World index showing a monthly return of 4.9%. It is no surprise that the big market winners from the Trump trade in November were US equities with the blue-chip S&P 500 benchmark showing a monthly gain of 5.8%, whilst US small caps surged with the Russell 2000 increasing by 10.9%. In terms of sectors, financials and tech stocks were big winners, conversely, renewable energy, real estate, and infrastructure did not welcome the headwinds from potential higher rates and Trump policy shifts.

Outside of the US gains were harder to find although the UK FTSE All Share Index did rally 2.5%. European and Japanese benchmarks were muted, whilst the threat of Trump tariffs on trading partners in Asia and emerging markets saw the MSCI Asia ex Japan and MSCI Emerging Markets fall back 2.6% and 2.7%. With China particularly susceptible, the MSCI China was the laggard falling back by 4.1%

Politics has also been the main driver for bond markets. Donald Trump’s re-election initially saw US treasury yields rise but the prospect of a rising budget deficit hasn’t spooked markets too much: the ten-year treasury fell from 4.28% to 4.17% over the month. It was Rachel Reeves tax ‘n’ spend budget that was causing most angst in the UK, with gilt yields rising sharply in the days following the budget. Things have calmed and the ten-year gilt now offers 4.24% compared to 4.44% a month ago.

On the currency front, the dollar strengthened on expectations of a robust economy and higher interest rates. However, the recovery of the yen was perhaps the biggest feature on belief that the Bank of Japan will raise interest rates as other Central banks reduce them. The pound lost over 1% against the dollar, 2.75% versus the Yen but was up 1.64% on the Euro which remains in the doghouse with the struggling German economy weighing on sentiment. The cryptocurrency sector, which has backed Republican campaigns was a big winner with hitting many new all-time highs in the wake of President Trump’s victory. In euros it was up 41% in November.

In commodity markets the price of a barrel of Brent fell in November despite OPEC delaying plans to increase output, the price possibly influenced more by easing Middle East tensions as Israel and Hezbollah reached a tentative ceasefire. Oil started November at $73.16 a barrel and closed on Friday at $71.84. Gold also had a more lacklustre month with worries about inflation and higher for longer rates coming to the fore. It fell $68 to finish at $2681 an ounce.

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Fund Watch

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Going over to the fund world now and there was dominance from US invested open ended funds. The US Smaller Companies sector topped the IA tables with an average gain of 11.94% - also featuring in the top few places were the main North American sector as well as the US heavy Tech and Global sectors. At the foot of the table, Emerging Markets underperforming was the dominant theme on worries of tariffs and dollar strength. Latin American funds were the worst falling on average more than 4%. China and the main Emerging Markets sector also featured. Interestingly two of the European sectors also featured in the worst five last month – continued worries about European stagnation, or anaemic growth as well as potentially the fallout from a US China trade war.

Turning to individual funds and there was only one story in the top ten, the US. The combination of upwardly moving markets and dollar strength meant US equities had a stranglehold on the top ten – though it was split between North America and North American Smaller Companies. Morgan Stanley took the two places with Artemis US Smaller Companies managed by Cormac Weldon hot on their heels. Baillie Gifford joined the party boosted by Tesla.

At the foot of the table, it was more of a mixed bag however the dominant theme was gold and precious metals funds. Gold fell less than $100, is 25% ahead of last year’s price yet equities take a tumble. Charteris Gold & Precious Metals propped the table with a fall of 12.9%.

In the eclectic world of investment trusts it’s been a record year for takeovers. There have been 14 mergers, and the number of trusts has fallen from 327 at the turn of the year to stand at 299 now. With fund raising tough to come by when many trusts sit on double digit discounts, that number will surely continue to shrink. Looking at performance last month and there wasn’t much difference between open and closed end products with North American Smaller Companies topping the charts with a gain of almost 19%. However, Catco Reinsurance topped the investment trust charts after confirmation that it is winding up imminently.

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Manager watch

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Is the Trump trade going to be the final leg up for US equities or will they continue their dominance in 2025? A recent meeting with M&G, sounded some caution over the US Equity market. With the US market heading for back-to-back annual returns of over 20% for just the fourth time in 150 years, are valuations priced for perfection? M&G cited the strong consensus in Merrill Lynch’s fund manager survey being that US stocks will be the best place to be 2025 and how this has traditionally a good contrarian indicator! For those looking for an alternative, a very gloomy outlook is priced into European equities which have never been cheaper compared to the US. M&G global managers have been buying European trophy assets such as Novo Nordisk and ASML following share price falls. If there was a ceasefire in Ukraine it would be big positive for Europe. Whilst Emerging Markets also feel like a strong contrarian play, with hardline tariff policies priced in.

N.b. the fund sectors exclude money market funds, markets are in local currency, and investment trusts exclude VCTs

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Important Information

This document is produced by Fairview Investing Ltd, an independent research consultancy. The content is for information purposes only and does not constitute financial advice. The commentary or research provided do not constitute a personal recommendation to deal. Any statements, opinions, forecasts, and figures are made by Fairview Investing (unless otherwise stated). They are considered to be reliable at the time of writing but may be subject to change.

Fairview Investing accepts no legal responsibility or liability for the content of this material. The contents of the document are not to be re-produced or circulated without the express permission of Fairview Investing Ltd.

Fairview are independent investment consultants sitting on the Investment Committee of EXE Capital Management.

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