September – November 2024

Returns for a Sterling investor over the last three months for a selection of indices are below:

The last 3 months saw central banks continue their recent lowering of policy rates, with the European Central Bank cutting by 25bps in September and October to 3.25% and the Bank of England implementing their own 25bps reduction to 4.75% in November. The US Federal Reserve also decided to reduce their lending rates by a larger than expected 50bps on 18^th September and a further 25bps in November. With US inflation coming in at 2.5%, 2.4%, and 2.6%, inflation has been much closer to its 2.0% target, providing enough of an angle for rates to be cut – however, it remains a key concern for policymakers. Factors including the incoming Republican administration’s policies, which more likely than not will stoke inflation, and core inflation in the US (currently 3.3%) remaining anchored around a higher-than-desired level, have dampened expectations that significant further rate cuts will be made during 2025.

Third-quarter earnings season in the US kicked off in October, with results generally coming in strong, providing a further catalyst for the S&P 500 to rally again over the last three months. 75% of firms surpassed analyst expectations, with the communication services sector (including names such as Meta and Alphabet) seeing 92% beating. On the other hand, the materials and consumer discretionary sectors saw the most companies coming in below expectations – at 38% and 28%, respectively. Earnings results of the mega-cap technology-focused companies garnered the most attention, with Microsoft enduring its worst trading day in over two years (-6.05%) as investors were disappointed by revised future earnings guidance. Nvidia also beat expectations on 20^th November across the board, though it saw its share price fall -5.24% through to the end of the period as investors engaged in profit-taking.

On 30^th October, the UK’s Labour Government unveiled its first budget in 14 years as it introduced an estimated £40 billion in new taxes (primarily through higher employer National Insurance contributions) and ambitious spending plans, raising concerns over the long-term inflation outlook. These fears in the run-up and after the event drove a sharp increase in UK borrowing costs as 10-year Gilt yields climbed from 3.94% to 4.56% from 1st October to their peak on 6th November, before easing to 4.25% by 29th November.

On 4^th November Donald Trump was elected the 47^th President of the United States as part of the ‘Red Sweep’ trifecta as the Senate, the House, and the White House were all won by the Republican Party. In the presidential race, Trump received 77.3m votes compared to 75.0m for Kamala Harris, thereby winning the popular vote, something which eluded him in his 2016 presidential election victory. Equity markets rallied on the news as investors anticipate a flurry of tax cuts, deregulation, fiscal expansion, and protectionist onshoring as the S&P 500 rose +5.60% and the small-cap Russell 2000 rallied +9.72% from 4^th November to month-end. These policies conversely left bond investors feeling uneasy with a deterioration of the US fiscal balance and increasing US budget deficit expected under the incoming government. Yields on the 10-Year Treasury rose from 3.70% on 18th September to a peak of 4.47%, before settling at 4.18% by November month-end. Subsequently, the US Dollar appreciated against every major currency besides the Japanese Yen, supporting the outperformance of US equities for UK investors.