With the U.S. 2024 Presidential Election concluded, Donald Trump has been elected as the 47th President of the United States. This outcome has sparked notable market reactions and provides a foundation for shaping our investment strategy moving forward.
For the month of Nov, the markets have responded positively to Trump’s victory, with the S&P 500 gaining 6.20%, the Nasdaq Composite increasing by 7.85%, and the Russell 2000, a benchmark for U.S. small-cap companies, surging by an impressive 9.50%. In contrast, Chinese equities posted a modest 1.75% gain. These movements reflect optimism surrounding Trump’s pro-business policies, particularly for U.S. small-cap companies, although volatility remains a concern as the markets navigate the intersection of policy announcements and broader economic conditions. Seasonal trends in November and December have further bolstered market performance, contributing to this positive momentum.
The Russell 2000’s performance underscores the market’s expectation that Trump’s trade and economic policies will favor smaller U.S. businesses. Anticipated increases in tariffs on imports are likely to raise the cost of foreign goods, driving demand for domestically produced goods. This shift toward domestic sourcing and production enhances the competitiveness of small-cap companies that predominantly operate within the U.S. As such, investors are encouraged to consider increasing exposure to small caps, particularly in sectors such as manufacturing, consumer goods, and industrials, which are poised to benefit from these policy shifts.
Chinese equities, meanwhile, present a more cautious outlook. Although they gained 1.75% for the month of November 2024, uncertainties surrounding tariffs on Chinese imports and the effectiveness of China’s policies to counter U.S. trade measures remain significant headwinds. Recent data indicates that China’s consumer inflation rose 0.3% in October, while factory-gate prices fell 2.9%, suggesting the recent stimulus has yet to break the grip of deflation. Additionally, the yuan and Chinese stock did not perform after authorities announced a total 10 trillion yuan program to refinance local government debt, but stopped short of new measures to boost domestic demand, leaving investors underwhelmed. Until greater clarity emerges on trade negotiations and domestic policy effectiveness, Chinese equities are likely to face ongoing pressure. Therefore, a selective approach to Chinese investments is recommended.
In the bond market, Trump’s pro-growth policies, including tax cuts and increased government spending, are expected to have a dual effect. On the one hand, these policies may drive inflation upward and widen the fiscal deficit, putting upward pressure on interest rates. On the other hand, the potential for a slowing U.S. economy may temper these effects, stabilizing interest rates at around 3-4%. To navigate this landscape, we propose a balanced bond strategy that includes short-duration bonds to hedge against near-term inflationary pressures and medium-term bonds to capitalize on potential rate cuts as economic growth slows. This approach aims to optimize returns while managing the risks associated with policy-driven market shifts.
Recent geopolitical events, including Israel's cease-fire agreement with Lebanon, the fall of the Assad regime in Syria, and the failed attempt by South Korea's president to impose martial law, have garnered international attention. However, these developments are unlikely to have a significant impact on the global stock market. While they may influence regional stability and localized economic conditions, broader market dynamics remain primarily driven by global economic policies, corporate earnings, and central bank actions.
Portfolio performance and Strategy
The portfolio experienced a rally in November, driven by the positive sentiments surrounding Donald Trump's election victory. Specifically, returns for the month were 3.61% for Cash, 4.81% for CPFIS, and 3.38% for SRS. This growth reflects a strong performance across all three portfolios.
The election of Donald Trump as the 47th President has set a positive tone for U.S. markets, with small caps leading the charge. While opportunities abound, a nuanced strategy is essential to navigate potential risks such as inflation, trade uncertainties, and policy-driven volatility. By balancing short-term optimism with medium-term caution, investors can position themselves to achieve strong returns in this evolving landscape.
Looking ahead to the end of the year, we remain optimistic about the U.S. markets. Favorable seasonality in November and December, coupled with market enthusiasm for Trump’s policies, creates a strong environment for equity growth. A lump sum investment strategy is advisable during this period, extending until January 2025. Post-inauguration, however, volatility may increase as policy implementation begins. To mitigate risks, we recommend shifting to tranche-based investments, spreading allocations over time to capitalize on market fluctuations and evolving policy impacts.
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