Weekly comment: Stocks pare gains as investors digest Trump implications

4 minute read

Weekly podcast – Market overview

This week’s host, Head of Managed Portfolio Service, Simon Doherty discusses the ups and downs of the past week with Head of Fixed Interest Research, Richard Carter, and Equity Research Analyst, Jarek Pominkiewicz. Among the topics discussed – latest global equities movements following the post US-election gains, lates UK economic data, US inflation increasing for the first time in six months, and much more.

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Market overview – Richard Carter, Head of Fixed Interest Research

Global equities dipped last week as stock markets handed back some of the post US-election gains with the MSCI All Country index falling 2.3% (+18.0% YTD). On the economic data front, the UK economy slowed more than expected in the third quarter, US inflation increased for the first time in six months and Federal Reserve (Fed) chair Jerome Powell’s comments saw a slight drop in the market pricing for a December rate cut.

United States

US stock markets declined 2.0% last week (+24.5% YTD) as investors took stock of the impact from the incoming Trump administration. While markets fell at a headline level, there were still several sectors outperforming with financials and energy stocks benefitting from the expectation of deregulation and merger approvals.

Tech benchmarks underperformed (-3.1% on the week, +25.2% YTD), weighed down by sharp falls in healthcare stocks as news broke the Trump would nominate Robert F. Kennedy Jr — a vocal critic of big pharma and vaccine initiatives — for the head of the Health and Human Services department (HHS). The role is responsible for approximately 25% of government spending, through the overseeing of programmes such as Medicare and Medicaid.

Small-cap stocks (-4.0%, +15.0% YTD) also fared worse than the wider market as growth underperformed value. While some are attributing the selling to a growing scepticism around the Trump administration prioritising ideology over pragmatism with its appointments, it appears more likely a case of market positioning unwinding somewhat following the US election outcome. This is supported by developments in the fixed interest space, where although the US 10-year Treasury yield touched 4.51% — its highest intraday level since June — on Friday it ended the week at 4.44%, around the same level it traded the day the US election result became known.

United Kingdom

A sizable depreciation in the sterling to US dollar exchange rate supported UK large-cap stocks last week, as they outperformed to end little changed (+7.9% YTD). The pound fell from US$1.29 to end the week at US$1.26. UK government bonds ended the week up 4 basis points at 4.47%, as soft economic growth and falling wage growth data provided some resistance to recent rises.

Europe Excluding the UK

For the fourth week in a row, European stocks declined (-0.7%, +6.2% YTD) although they held up better than US peers. There was a notable dispersion of returns on a country-by country basis as France declined (-0.9%, -0.8% YTD), Italy gained (1.1%, 17.5% YTD) and Germany ended pretty much flat (14.7% YTD). Strength in the US dollar also saw a fall in the euro exchange rate, ending the week at US$1.05.

UK growth stalls

The latest figures show that the UK economy registered a meagre 0.1% growth in the third quarter, slowing substantially from the pace seen in the first half of the year. A slide in manufacturing meant that September saw a contraction in growth. After growing 0.7% in Q1 and 0.5% in Q2 some are attributing the slowdown to the change of government, although this seems unlikely in itself to be the chief contributor.

While some of the negativity surrounding public finances and the impending threat of a tax-rising budget may have dampened business confidence during the quarter, it is more likely that the result is a truer reflection of current UK growth dynamics. The strong first half performance was something of a snapback, boosted by a rebound from a technical recession in 2023. It is still too early to judge the impact of Labour’s policies on growth and the additional government spending planned for the coming months should provide a near-term boost.

Elsewhere, annual wage growth (ex-bonuses) came in at 4.8% during the quarter, its lowest level in over two years. Despite the drop, Huw Pill, Bank of England chief economist, maintained that inflation pressure remains too high for central bank’s 2% target.