November Performance Update

We always felt that the last quarter of the year would be the trickiest, mainly due to the uncertainty surrounding the US election and UK budget. Whatever you think about the outcomes, the fact that they are now past events, should help the direction of markets. Volatility will remain as markets try to estimate the potential implications from each event.

In the main, the US equity market reacted positively to Trumps election. In contrast global markets (as well as domestic), saw the UK budget as economically challenged. As a result, the main implication both sides of the Atlantic are that spending, and therefore interest rates, are likely to stay higher for longer. This initially caused bond markets to reprice the chance of interest rate cuts, now expecting 3 from the Bank of England in the next 12 months, down from 4. This has pushed bond yields higher, with mortgage rates following, increasing around 0.2% over the last month, and 0.5% over the last two months.

On the other side, the prospect of a more business-friendly policy has boosted the US stock market. Aptly named the ‘Trump Bump’, the idea here is that lower corporate taxes and more US centric policy will be good for business. Sadly, the same cannot be said for the UK, with Rachel Reeve’s expansionary budget seen as a dampener and not an enhancer of growth. Maybe ‘Rache’s Ripple’ is more reflective of the impact here…

Despite the difficulties in bond markets, the portfolios have had a good month, up between 0.53% (Very Low Risk) and 4.01% (High Risk) at the time of writing. The equity impact has more than compensated for the difficulties in bond markets, and even Very Low Risk, which has minimal equity exposure, provided a positive outcome due to the benefits of the specific areas in the bond market we have selected.

Year-to-date that leaves the portfolios in a strong position heading into December, all having returned above their annual target returns for the calendar year, as well as producing significant outperformance over their respective risk/return benchmarks and peers.

Where do we go from here then? Well, as we have said all year, the economic backdrop remains favourable. Inflation is low and looks well contained, interest rates are being gradually cut, and so far, there are no signs that the higher interest rate period will end in a recession. Even if growth does start to weaken from here, Central Banks have ample room to cut interest rates to stimulate a recovery, so there is an additional layer of protection.

The main risks remain geopolitical, and although potentially positive, there is no doubt there is more uncertainty now we have a Trump government. A potential solution in Ukraine could give European growth a boost, though it could also alienate the EU-US relationship, if it is not something all sides agree on. On the tariff front, our sense is less will be delivered than has been suggested, and any that do get through will not be enough to cause a meaningful increase in inflation. Again though, it is a key unknown, and the facts can change quickly.

On AI, we are still at the stage where we have not yet seen enough progress to suggest the spend frenzy is justified. If that lasts much longer, we will start to see an impact on corporate earnings, which could cause a significant correction in a part of the market which has driven a lot of recent growth.

Altogether, we have a positive investment backdrop, though as always there are some key risks to monitor. So, business as usual, as we move into December and prepare our allocations for the year ahead.  It’s our job to adjust things as the scenarios shift, and our team enjoys the challenge.

Pending the next months performance, the portfolios have done a great job in 2023 and 2024, so our focus is on continuing that into 2025 and beyond. If nothing else, now that we know the outcome of the two big events in November, we have a clearer idea of the things we have to worry about.