Trump's win sparks market rally, but headwinds loom

US markets kicked off November with Trump’s win-driven euphoria, with the S&P 500 Index surging 3.8% in the first six days following the election results on 5 November. Growth stocks and small caps in the Nasdaq and Russell 2000 also displayed notable increases. 

Risk assets, such as cryptocurrencies, joined the rally, with Bitcoin more than doubling in value this year. Investor optimism was largely driven by expectations of Trump’s pro-growth and pro-business policies, including tax cuts, deregulation, and lower corporate taxes.

However, the rally lost momentum as the market tempered its initial excitement around mid-month. Investors took some profits ahead of the October US CPI report. There was also a slow realisation that the incoming administration's policy decisions could significantly differ from initial expectations, as Trump started announcing unexpected and controversial Cabinet picks as well as new policy plans. 

Specifically, a new tariff pledge from Trump towards the end of the month targeting the United States' three largest trading partners—Canada, Mexico, and China—raised concerns about potential trade wars, which kept global markets nervous.

The USD Index (DXY Index) continued to advance from October onwards, at one point gaining more than +4% intra-month, as higher tariff expectations moved the 10-year treasury yield higher.

Even with the mid-month turbulence, the broader US market managed to end November with gains, supported by positive macroeconomic data, including higher-than-expected retail sales and a robust PMI reading. Investors are cautiously optimistic that Trump’s policy agenda will ultimately add fuel to the long-standing outperformance of US equities over global markets especially with a stronger USD and resilient domestic economy. 

Meanwhile, geopolitical tensions continued to rise in November. North Korea's involvement in Russian assaults added to China’s challenges in managing U.S. relations as Donald Trump prepares to return to the White House in January. The U.S. has urged Beijing to use its influence on Pyongyang to prevent further escalation of the conflict. Meanwhile, North Korean leader Kim Jong Un vowed to bolster his country's nuclear capabilities "without limit" to counter threats from the U.S. and its allies, according to state media.

Trump has pledged to end the war even before taking office, but it remains to be seen how this will unfold.

Global equity

In November, US equities experienced their largest monthly gains of the year, driven by Donald Trump’s presidential victory and the Republican party's control of Congress. The prospect of tax cuts, expansionary fiscal policies, and a nationalist trade approach fueled optimism, particularly benefiting small-cap companies that are domestically focused. All eleven US equities sectors posted positive gains, with consumer discretionary and financials leading the way, and healthcare lagging due to concerns over the new administration's stance on the pharmaceutical industry. Positive macroeconomic data, including higher-than-expected retail sales and a robust PMI reading, further supported the rally. 

However, international markets were less enthusiastic; both emerging markets and developed markets dipped, impacted by trade policy concerns and a stronger US dollar among other reasons.

Global fixed income

In November, central banks continued to lower rates, with the Federal Reserve cutting the federal funds rate by 25 basis points to a target range of 4.50%-4.75%. Similarly, the Bank of England reduced its policy rate by 25 basis points to 4.75%. However, bond markets only saw marginal benefits as concerns over potential inflation from Trump’s policy proposals tempered expectations for further rate cuts in the US.

US high yield bonds outperformed government bonds, supported by a solid growth outlook for corporate earnings. 

Commodities

In November, commodities traded steadily, with notable gains in coffee, cocoa, and natural gas offset by declines in precious and industrial metals as well as grains. Bitcoin surged to new all-time highs in anticipation of a more crypto-friendly regime in stark contrast to Gold which fell 3.7% in November.