Monthly Outlook: November Post Election 2024

What a difference an election can make! The outcome of the U.S. elections on November 5th surprised many, including most polls and pundits. Republicans did better than the polls suggested pre-election day and they now control the White House, House and Senate. Such a rout has important cultural and civic implications, but it’s not our place to dissect those. Instead, we’ll stay in our lane and share with you how this political shift is impacting markets already as policies and appointments are being announced. Because many of the announcements are objectively shocking, the impacts on markets are significant and we can already see clear winners and losers in markets.

Inflation, Interest Rates, and Bonds

It’s often said that the bond market is the “smart money,” and the stock market is the “emotional money.” If so, the smart money is now concerned about resurging inflation due to the policies of Trump. Tariffs and anti-globalization are inflationary and that’s the direction of policies that have been unveiled this week. As a result, the 10-year U.S. Treasury rate has risen back to 4.45% after hitting a low of 3.65% in September. Rising rates always mean falling bond prices and this new downtrend has triggered our sell signals on long-term bond ETFs. Already, we’ve sold our long-term bond ETFs and bought short-term, less-risky, bond ETFs in their place.  We’ve moved our portfolios from an average 13-year maturity to 3-year maturity. This is the correct bond position as long as inflation fears prevail.

U.S. vs International Stocks

Many of Trump’s announced policies are “U.S.A. First” and anti-globalization. Trump has proposed massive tariffs on China, in particular, and ending trade deals with Mexico and other emerging markets. The market has reacted by pushing up U.S. stocks and smashing down international stocks. The S&P500 has risen 3% since the election, the NASDAQ is up about 4%, and U.S. small company stocks (Russell 2000) are up closer to 5%. On the other hand, European stocks are down 5%, Chinese stocks have lost 7%, and Mexican stocks are down 4%. These moves have further extended the uptrends for U.S. stocks and so we continue to be fully invested in our U.S. ETFs. However, our international stock ETFs have rolled over their trendlines, which triggered our sell signals for INTL Growth and INTL Value ETFs.

Sectors and Industries

We’ve also seen shifts in which sectors and industries are in favor and out of favor. Due to Trump policy changes, we’re seeing money flowing into technology, energy (oil, in particular), communication, financial, and consumer discretionary sectors. On the other hand, real estate and utilities are now declining on interest rate concerns, and healthcare is falling on concerns about cuts to the healthcare and pharmaceutical industries. International companies that export to the U.S. have been hurt as well, due to proposed tariffs. We also see relative weakness in ESG-oriented ETFs that focus on environmental, social, and governance criteria. Oil, the commodity, is down about 4% since the election due to “drill, baby, drill” promises to increase oil supply, which would result in lower gas prices.

This is Just Week One – What’s Next?

The first week “post election” has already resulted in a lot of market volatility and changes in price trends leading to portfolio repositioning. We can’t even know what we don’t know about the weeks ahead. Again, our comments are not meant to be political, but are focused on market impacts and how to continue to help our clients grow their portfolios while providing drawdown protection when needed. With history as our guide, many of the first-week concerns will likely be wrong as some policies won’t be enacted or won’t be as severe as proposed. On the other hand, there are surely unintended consequences to Trump’s policies that the markets will continue to digest. The only prudent course of action for us, as money managers, is to follow our strategy as we would for any market condition. We’ll constantly monitor all markets and their ETFs for price trend changes. We’ll stay invested in ETFs that are rising and making money, and we’ll sell the ETFs that are falling. We’ll make it, and keep it.