Equities Surge Following Election Results and Fed Decision

Equities Surge Following Election Results and Fed Decision

Equity markets surged following last week’s election results and Federal Reserve interest rate cut. Global equities (represented by the MSCI All Country World Index) were up 3.36% while domestic stocks (represented by the S&P 500 Index) were up 4.69%.

US Election

Weekly headlines were dominated by the US election as Donald Trump was re-elected as President and Republicans controlled the Senate. Markets moved swiftly as investors assessed the results as a potentially better environment for earnings growth and lower corporate taxes. However, investors will continue to monitor what the next four years will bring and how, or how quickly, Trump’s plans may come to fruition. From Wednesday to the end of last week, small-cap companies (represented by the Russell 2000 Index) led the way, up 6.16%, and domestic stocks (represented by the S&P 500 Index) had most of their weekly gains up 3.70%

FOMC Meeting

Overshadowed by the election, the Federal Reserve held its FOMC meeting last Thursday in which the Fed announced a 0.25% rate cut, following their 0.50% cut in September. In his post-meeting press conference, Fed Chair Jerome Powell emphasized that the election results are not expected to impact near-term monetary policy decisions, and the Fed continues to view their policy as restrictive at this time. Treasury yields initially jumped following the election results but ended the week mostly flat or down following the Fed’s rate decision. Both the 2- and 10-year US Treasury rates now sit higher than they did coming into the year with the past month’s volatility in rates. While partially fueled by strong growth, concerns around the new political regime’s fiscal plans could continue to fuel volatility with higher inflation and higher rates being the outcome.

Source: BEA

Institute for Supply Management’s (ISM’s)

Other positive data releases for the week included the Institute for Supply Management’s (ISM’s) services sector gauge, which came in at 56.0 for October, with readings over 50.0 indicating expansion). This was the highest level dating back to August 2022, and the prices paid component eased slightly. Consumer sentiment also rose to the highest reading in seven months based on the University of Michigan’s Index of Consumer Sentiment, as one-year inflation expectations ticked down slightly.

Looking Forward

This week the main economic data releases are the Consumer Price Index (CPI) report for a look into the inflation trend for October and the US retail sales report.

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.