Investment Update – 6th November 2024

The UK Autumn Budget

The impact of the chancellor’s budget on individuals’ and companies’ taxes has been well documented, and necessitates careful planning.  In terms of financial markets, although the budget did cause some concern in the bond market, leading to higher yields, the reaction was nowhere near as severe as the Truss budget in 2022.  The government’s commitment to fiscal stability and the implementation of new fiscal rules have helped to reassure investors.  Additionally, the budget’s focus on boosting long term growth through increased capital spending and investment may be viewed positively.  While there are still some concerns about potential inflationary pressures and the impact on interest rate expectations, overall, the market response suggests that investors view the budget as relatively balanced and not overly disruptive to the UK’s economic outlook.

Yields on 10 year bonds

Source: Bloomberg

The US Presidential Election

Following Donald Trump’s victory in the 2024 US presidential election, the US dollar strengthened against major currencies and financial markets responded with optimism. The S&P 500, Dow Jones, and Nasdaq, rallied to new record highs, with small-cap stocks experiencing particularly strong gains – this positive sentiment driven by expectations of Trump’s pro-business policies, including potential corporate tax cuts, deregulation, and a protectionist stance designed to favour domestic producers.  Sectors such as financials, energy, and domestic manufacturing stand to benefit from Trump’s proposed initiatives.

In the bond market, yields rose, reflecting anticipations of higher inflation and economic growth.  However, Trump’s trade policies, particularly the potential imposition of tariffs, could lead to increased market volatility and inflation risks in the longer term. Additionally, his threats to repatriate immigrants may negatively impact the employment market. Geopolitical uncertainties also loom large, especially concerning relations with China and support for Ukraine.

The election outcome was surprisingly decisive, which likely contributed to the positive market reaction by eliminating uncertainty and the risk of a prolonged political struggle.

The result will undoubtedly give Democrats significant cause for reflection.  As the chart below shows, voters concerns were primarily focused on immigration and the economy.  Although inflationary pressures are now easing, the cost of living crisis has already taken its toll on a weary electorate.

Voters who care most about the economy and immigration largely voted for Trump

Source: FT, Edison Research (Bar height represents the share of voters choosing each issue as their main priority)

 

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