Markets Last Week - 15/11/2024

U.S. stocks surrendered some of the prior week’s gains as uncertainty over the incoming administration's policies continued to influence the so-called “Trump Trade.” The potential impact of these policies on corporate earnings was evident in the varying performance across sectors. Financials and energy stocks gained on expectations of deregulation and favourable merger approvals. Meanwhile, Bitcoin surged by 32.46% since the election, peaking Wednesday, as investors anticipated more lenient regulation of digital currencies. 

On the other hand, healthcare stocks tumbled, with the iShares Biotechnology ETF dropping 4.79% on Friday. This followed news that Robert F. Kennedy, Jr. is President-elect Trump’s pick to lead the Department of Health and Human Services (HHS). Kennedy, a known critic of the pharmaceutical industry and public health initiatives like vaccination programs, would oversee key federal programs, including Medicare and Medicaid, representing roughly a quarter of government spending. 

EV Stocks Slide Amid Tax Credit Concerns 

Electric vehicle (EV) stocks, particularly Tesla, experienced notable movement. Tesla’s stock surged 42.63% at its intraday high on Monday, driven by President-elect Trump’s indication that Tesla CEO Elon Musk would hold a significant advisory role in his administration. Musk is also rumoured to co-lead a proposed Department of Government Efficiency alongside tech entrepreneur Vivek Ramaswamy. 

However, EV stocks pulled back later in the week after reports confirmed plans to eliminate the $7,500 consumer tax credit for EV purchases. Rivian, a maker of high-end EVs, suffered the steepest losses, with its stock falling 14.3%. 

Inflation Data and Fed Sentiment 

The week’s economic calendar featured October’s inflation data, which aligned with expectations. Headline prices rose 0.2% month-over-month, while core prices (excluding food and energy) increased by 0.3%. On an annual basis, headline inflation ticked up from 2.4% to 2.6%, driven largely by persistent housing cost increases. Producer price inflation, reported Thursday, have risen in line with the expectations and their consumer counterparts. 

Federal Reserve Chair Jerome Powell tempered market optimism with remarks suggesting no urgency to lower interest rates. Futures markets reflected reduced expectations for a December rate cut, falling from 64.6% to 58.4%. Similarly, the probability of a full percentage point of rate cuts by the end of 2025 dropped from 41.3% to 32.6%. 

Rising Yields Impact Fixed-Income Markets 

Long-term interest rate expectations pushed the benchmark 10-year U.S. Treasury yield to a five-month high of 4.51% on Friday. While Treasury yields rose across most maturities, municipal bond yields remained steady, with modest declines at the shorter end of the curve. Secondary market activity in municipal bonds was strong, supported by healthy trading volumes and demand. 

Heavy issuance in the investment grade corporate bond market drove a slight widening of spreads, while the high-yield market also edged lower amid rising rates and increased issuance. Bank loan markets were particularly active as issuers capitalised on recent market strength  

Index	Friday's Close	Week's Change	% Change YTD
DJIA	43,444.99	-544.00	15.27%
S&P 500	5,870.62	-124.92	23.08%
Nasdaq Composite	18,680.12	-606.66	24.44%
S&P MidCap 400	3,207.52	-89.84	15.31%
Russell 2000	2,303.83	-95.80	13.65%

The UK economy experienced an unexpected slowdown in the three months ending September, Gross domestic product (GDP) grew by just 0.1% in the latest quarter, down from 0.5% in the previous period and below the consensus forecast of 0.2%, indicating a slowdown in economic activity. The contraction of 0.1% in September, driven by weaker manufacturing output, contributed significantly to the overall dip. While the services sector saw modest growth of 0.1%, the construction sector performed notably better, increasing by 0.8% over the three months. This mixed performance suggests that while construction is holding up, manufacturing remains a drag on the economy. The data points to a more fragile economic recovery, with sectoral disparities highlighting ongoing challenges, particularly in industrial production. Policymakers may need to reassess their strategies considering these developments. 

The labor market also showed signs of strain, with wage growth excluding bonuses averaging 4.8% annually during the same period. This represents the slowest pace of wage increases in over two years, signalling potential challenges for households amid persistent inflation. Following the release of these figures, Bank of England Chief Economist Huw Pill cautioned that inflationary pressures remain too elevated to meet the central bank’s 2% target, highlighting ongoing economic challenges for the UK. 

The pan-European STOXX Europe 600 Index declined by 0.69% in local currency terms, marking its fourth consecutive weekly loss. Investor sentiment was dampened by worries over the incoming U.S. administration’s trade policies, political instability in Germany, and cautious remarks from Federal Reserve Chair Jerome Powell regarding U.S. interest rates. 

Performance across major European stock indexes was mixed. France’s CAC 40 Index dropped 0.94%, while Germany’s DAX remained relatively flat. Italy’s FTSE MIB outperformed, gaining 1.11%, while the UK’s FTSE 100 Index posted a slight decline. 

Eurozone Shows Signs of Recovery Despite Ongoing Industrial Challenges 

Economic data from the Eurozone has bolstered hopes for a soft landing, with Eurostat’s second estimate confirming a robust 0.4% GDP growth in the third quarter. The European Commission projected a modest 0.8% economic expansion for 2024, although Germany’s economy is expected to shrink by 0.1%. The labor market remained resilient, with employment rising 0.2% in the third quarter, building on a 0.1% increase in the previous quarter. 

ECB Highlights Precautionary Nature of October Rate Cut 

Minutes from the European Central Bank (ECB) meeting revealed unanimous support for the October quarter-point interest rate cut. Policymakers emphasised that the move was a precautionary response to the strengthening disinflationary trend, aiming to minimise unnecessary harm to the real economy. The decision was also framed as a “prudent risk management” step, providing insurance against potential downside risks that could cause inflation to fall below target. The ECB reiterated that future policy decisions would remain data-driven and stressed it is not pre-committed to any specific path for interest rates.