Following last week’s US presidential election, the US equity market picked up and valuations of small caps in particular experienced an upswing. What other events took place during election week?
The long-awaited US election was decided last week, with a strong victory for Republicans. Republican presidential nominee Donald Trump won every swing state and a clear majority in the electoral college.
As expected, the Republicans also took control of the Senate. The outcome regarding the House of Representatives is still open, but the Republicans are expected to secure a majority of the House seats.
There is still little information about the intentions, appointments and policy goals of the Trump administration. From the markets’ perspective, key issues are who will be appointed to Trump’s cabinet and which of the much-talked-about election promises will be implemented first. However, due to the likelihood of a Republican House majority, the mandate to fulfil the election promises is strong.
Last week ended in a mood of excitement, as equities surged in the wake of the election, particularly in the USA. After Trump’s win was confirmed on Wednesday, various indices in the USA rose 2 to 3 per cent. The strongest rise was in small caps, which surged nearly 6 per cent.
Interest rates also rose sharply after the election but later fell, ending up close to the week’s starting levels. At the same time, the dollar clearly strengthened against all currencies, increasing the returns on USD-denominated investments.
Elsewhere in the world, the post-election sentiment has been more muted as the markets price in the Trump administration’s anticipated policies. In China, for example, the equity market fell considerably in the wake of the election.
Although the US election has been one of the most talked about topics on the investment markets in recent weeks, outside of the election, it was nevertheless business as usual on the markets. In the midst of a busy week, the US central bank, the Fed, held its meeting, during which it lowered the upper limit of its key interest rate to under 5 per cent.
The Fed’s message at the meeting was cautious as expected, and there was considerably less interest in this meeting. The biggest headlines probably surrounded Fed Chair Jerome Powell, who stated that he refused to resign if Trump asked him to step down.
Even economic data has been receiving less attention in recent weeks. On that topic, the most significant news came from the US labour market, whose October figures were clearly impacted by hurricanes and strikes.
Economic data will quiet down towards the end of the month, but US inflation figures and retail sales may make headlines. The Q3 earnings season is also nearing its end, but investors are keen to see Nvidia’s 20th November earnings release.
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