Global financial markets delivered a decisive verdict on Donald Trump's return to presidency, with America's domestically focused companies staging their sharpest rally this year.
Donald Trump secured a decisive win over Kamala Harris, surging past the 270 electoral votes needed to reclaim the presidency. The Republicans dominated key battleground states including Georgia, North Carolina and Pennsylvania, while gaining ground with male voters and those under 45. His campaign successfully connected with voters frustrated by high prices and immigration concerns, while neutralizing traditional Democratic advantages on social issues. Economic anxiety and border security proved decisive factors in Trump's return to the White House.
US smaller capitalisation stocks outpaced their blue-chip peers, as investors wagered on the benefits of anticipated policies. Similarly, large cap financial, industrial and energy stocks did particularly well. Other markets however showed mixed performance with European stock markets suffering due to concerns about defence and trade policy.
Fixed income markets struck a more cautious tone. The yield on the benchmark 10-year Treasury - which moves inversely to prices - climbed to its highest level since July, as investors weighed the implications of potential tax cuts and infrastructure spending under a Trump administration.
The political shift comes amid a broader pivot towards looser monetary policy. The Federal Reserve, having cut rates substantially last quarter, appears poised for further easing in both November and December. Resilient consumer spending suggests scope for more measured policy normalisation through 2025, however.
In the UK, markets have been digesting Labour's first Budget in a generation. While Rachel Reeves's £25bn tax-raising package garnered negative headlines, commitments to infrastructure spending and expectations of Bank of England monetary easing provide some support.
Portfolio returns have been strong in 2024, driven by the strength in a broad range of asset classes. While US large-cap equities have led the charge, allocations such as high yield bonds and Asian equities have also contributed to strong returns.
Our diversified approach has helped during recent market swings. Looking ahead, company profits continue to surprise positively, providing a positive backdrop for equity markets. While some market segments may look expensive, others offer attractive prospects as policies shift in their favour.
The combination of loose monetary policy, strong consumer spending and ongoing fiscal stimulus provides a supportive backdrop for markets. While sharp moves like those seen this week remind us of the importance of diversification, the environment for long-term investors remains constructive.