Market Briefing: 11th November

Stock markets cheered the result of the US election, with global stock markets having their best week in over a year! US stocks drove most of the gains, with smaller companies (especially regional banks) enjoying the best returns. Last week also saw interest rate cuts come in from the Bank of England and the US Federal Reserve, which helped boost the bond markets. After all the excitement of last week, this one looks much quieter, with a smattering of corporate earnings and UK growth data towards the end of the week being the highlights.

Last week

• Global stock markets had their best week in over a year.
• President-elect Trump’s decisive victory saw US stocks rally strongly.
• Interest rate cuts came from the UK, US and the Swedish Central Bank.
• Bond markets posted modest gains.

This week

• It’s a much quieter week after last week’s excitement!
• US inflation (out on Wednesday) will likely feed into the Bond market and the pricing of interest rate cuts.
• We have UK employment data out tomorrow and Growth (GDP) data out on Friday.
• Astrazeneca (the second biggest stock in the FTSE 100) reports earnings tomorrow, whilst Cisco and Disney (in the US) report on Wednesday and Thursday.

Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.

More detail:

• Donald Trump’s decisive US election win was the big market driver last week. Global markets, driven by the US, rose by 3.7% and enjoyed their best week in over 1 year. Markets had been in a holding pattern running into the election, so this was something of a relief rally, but there was also optimism baked in around potential tax cuts and deregulation (which may boost growth). Whilst not guaranteed, these measures become more probable should the Republicans enjoy a clean sweep and gain control of the House of Representatives along with the Senate (where they have already achieved a majority).
• US stocks were the big winner last week, with the broad US index up by 4.9%. Within this, smaller companies did best (as they’ll benefit from tax cuts and tariffs on international competitors), and big tech companies also rallied strongly (as they’ll benefit from deregulation). The financial sector, in particular, performed well, with the regional bank index (KBW) up by 11.9% on Wednesday (the day the election results fed through) and up by 8.7% on the week; with more deal making and mergers & acquisitions being priced into the market.
• Corporate earnings continued to be strong and this too helped power the market higher. We would argue that the impact of these have been overshadowed by the Election over the last couple of weeks and the certainty of a result now allows the market to turn its attention back to fundamentals. To that end, we’re now 91% of the way through the US corporate reporting season with companies generating Q3 earnings growth of 5.3% (according to Factset data). This is better than the 4.3% growth rate that had been expected (at end September) and puts us on track for the 5^th consecutive quarter of positive earnings growth: a positive kicker for the market!
• UK and European stocks had a tougher week. This was partly attributable to concerns around the impact of President-elect Trump’s trade policies and partly due to certain stock specific moves. The UK FTSE All Share was down by 0.9% on the week, with healthcare, and in particular AstraZeneca (“Astra”), dragging. Astra fell by 10% on the week and has now lost its place (to Shell) as the biggest stock in the FTSE 100 index. Astra’s China arm is being investigated for medical insurance fraud and data breaches and this has seen the stock fall 25% from its peak in early September. Elsewhere in the UK index, there were some encouraging trading numbers from British Airways owner IAG which was the best performer in the FTSE 100 index (up by 10% on the week).
• Interest rate cuts were another key theme of last week, with cuts coming from the Swedish Riksbank, the Bank of England and the US Federal Reserve. The Bank of England voted 8-1 to reduce the Bank rate for a second time this year, by 0.25%, to 4.75%. Bank of England Governor Bailey said that “it’s likely interest rates will continue to fall gradually”. Bond market expectations for interest rate cuts have tempered since the Budget (as inflation has been priced higher), with the bond futures market now pricing in 3 more interest rate cuts by the BoE over the course of the next year as opposed to the 4 that they were pricing pre-Budget.
• The US Federal Reserve also cut interest rates by 0.25% last week, taking the target rate to 4.75%. Fed Chair Powell faced lots of questions about the future path of interest rates and also whether he’d stay on until the end of his term as Fed Chair (which ends in May 2026). Regarding the future path of rates, Powell opened the door for a slower pace of rate cuts, citing “uncertainty” in the outlook and insisting that the Fed would remain “data-dependent”. Fed Chair Powell was asked by journalists in the press conference if he’d leave office if asked to by the President-elect and gave a very emphatic one-word answer: “No”!
• Bond markets rose modestly last week, with yields falling on the back of the interest rate reductions. This saw UK gilts rise by 0.2% on the week (with the UK 10-year bond closing the week at 4.43%) and credit markets slightly outperform as credit spreads continued to tighten.

The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.

The content of this article is not intended to be or does not constitute investment research as defined by the Financial Conduct Authority. The content should also not be relied upon when making investment decisions, and at no point should the information be treated as specific advice. The article has no regard for the specific investment objectives, financial situation or needs of any specific client, person, or entity.