Harris Lost and Trump won. We will allow the political analysts to dissect the rest.
However, the emotionless, apolitical, atheist data was right again (well…approx. 82% of the time it’s 100% right!). On occasions the S&P 500 index fell the month before the U.S. election (i.e. October), the incumbent party lost the White House on most occasions – see table below. We have now updated this table and let’s see how November performs.
Are markets disoriented from the election result? Implications for markets are what we are interested in and how they have reacted is what we expected them to do if there was a Trump clean sweep – long-term bond yields up, U.S. dollar up, U.S. stocks up (especially U.S. small caps) and bitcoin up. As we have been communicating to our clients all year, we have stayed underweight/away from/cautious of duration / bonds. We were certainly of the view that the U.S. Fed did not need to cut interest rates in September (especially not 50bps!). We got Jerome Powell’s move wrong BUT since the 50bps cut U.S. 10-Yr Treasury yield is up more than +70bps. iShares 20-Yr Treasury Bond ETF (TLT) is down ~8% since mid Sept-24.
In our view, right now the markets just want to rally – a bit like Forrest Gump just wanting to run! We have a clear winner (markets like that) and it’s likely to be a clean sweep as well (tick again!) – Trump taking the House / Senate / White House.
However, post the dust settling the macro-economic and market implications are not so obvious, in our view. Because, put simply, higher U.S. bond yields (cost of capital / mortgage rates etc) and U.S. dollar (especially for the rest of the world) is a tax on economic growth. How do tariffs work out over the long-term? U.S. deploying tariffs against other countries will be met with reciprocal measures – we don’t actually believe tariffs work. What you will get is trade deals with China, Europe etc – deals are what Trump likes to do! Further higher interest rates are generally negative for Small Cap equities but they are also rallying on pro growth optimism.
Our view would be for clients to let the markets work through the mathematical permutations over the near-term before making any major portfolio changes (happy to discuss 1-on-1 for those that are interested).
Banyantree SMA multi-asset strategies are well positioned for several outcomes:
+ exposure to small caps in Aussie & global (if cyclical rally is on the cards due to pro growth policies we have some exposure)+ unhedged exposure to global / U.S. assets versus Australian equities (the aggressive U.S. dollar move higher recently is working for our portfolios)
+ Little to no duration / bond exposure (we are looking to get back into duration but we are not in a hurry as we still believe the movements in the bond markets are very much binary…frankly you can invest in TDs / annuities at ~4 – 4.5% and come back in one year!)+ our liquid defensives (alternatives) are doing their job for us. + out strategies continue to run low to moderate volatility (4-8% levels).
China needs to up the ante.
China has announced major stimulus packages over the recent weeks/month. However, we are yet to see it materialise on the ground, as we have been noting in our recent weekly / monthly client meeting. For example, we need money supply to increase and sectors like manufacturing to improve (recent PMI may have hinted at the first signs of life though – see chart below). But part of our thinking was China wanted to wait and see the outcome of the U.S. election before going heavy / targeted. We think China may need to go heavy on the stimulus implementation now.
Elon Musk, China & Trump’s China Tariffs.
Mr Musk was very actively involved with Trump’s election campaign. Further, it appears he will very much be part of Trump’s administration on some level (anecdotal comments of Elon Musk trying to bring about $2tr efficiency gains etc). However, in markets it sometimes pays to follow incentive structures – we are humans after all. Tesla’s share price rallied +14.75% overnight and the share price up +35% over a matter of weeks. See the headline below.
Unless Mr Musk is planning to shift his China plant to India / other parts of the world or back to the U.S. (will he?), we believe Trump’s administration will prefer to do deals with China on tariffs & other trade matters as expressed above. That’s a positive. Also keep in mind to the average U.S. voter its inflation / cost of living that matters – China is not high up the priority list you would be surprised to learn. We have a position in Chinese equities but for most clients we recommend a cautious approach given our view invetors need to be very active with this position.
