MyStratWeekly – November 26th 2024

Topic of the week: U.S. equities: Will the music stop?

• The U.S. equity market rallied on the news of the election of Donald Trump. The S&P 500 is up 24% so far this year led by the stellar performance of the Magnificent 7 group;
• The Mag7 profit growth has slowed to 25% in the third quarter. Corporate earnings have been flat for the S&P;
• The sustainability of the equity bull market will depend on a range of factors, including valuations, long -term interest rates and the sequencing of policies;
• Trump is calling for unprecedented tariff increases. This brings back memories of the Smoot-Hawley Act which compounded the impact of the 1929 equity market crash and the economic depression;
• The risk of fiscal slippage appears very high under the incoming Trump administration. Higher yields could break the equity rally;
• The S&P 500’s equity risk premium has fallen to 0%. The Technology sector is now trading at negative risk premiums. This draws comparisons to the TMT bubble of late 1990s.

Market review: The temperature is gradually rising

• Military escalation between Russia and Ukraine;
• The Bund plunges below 2.30% after mediocre PMI data;
• Credit and equities trade sideways;
• Gold and the dollar as vectors of risk aversion.

Axel Botte’s podcast:

• Review of the week – Financial markets, economic situation in Europe;
• Theme – The US stock market and the Trump risk factor.

Chart of the week

The trade policy uncertainty index (TPU) is constructed by staff in the International Finance Division of the Federal Reserve Board and measures media attention to news related to trade policy uncertainty. The index reflects automated text-search results of the electronic archives of 7 leading newspapers discussing trade policy uncertainty: Boston Globe, Chicago Tribune, Guardian, Los Angeles Times, New York Times, Wall Street Journal, and Washington Post.

The index is scaled so that 100 indicates that 1% of news articles contain references to TPU.