Bond and equity markets are anticipating and adjusting to the pro-growth agenda of presidentelect Trump. We also updated our growth forecasts.
This week, equity markets in the US rose, with the Dow Jones index closing above 19,000 for the first time ever. Investors continue to positively assess the plans of President-elect Donald J. Trump for more fiscal spending and company-friendly tax cuts. His ‘America first’ agenda benefited small and mid-cap stocks more than large caps. US companies with smaller market capitalizations are perceived to be less sensitive to potential trade restrictions by Trump. At the same time, in European markets the tight polls on the Italian referendum of 4 December took centre stage. This put further pressure on Italian bank shares.
In the meanwhile, equity investors remain focused on interest rates and the oil price. The potential interest rate rise by the US Federal Reserve (Fed) in December, is perceived by the market as sure to happen. It has hardly hampered the performance of developed equity markets because the focus is on (earnings) growth. It did, however, add to a decline in emerging market equities as investors are concerned that emerging markets
will suffer from a stronger US dollar.
The energy sector benefited from higher oil prices this week on the expectation that the organisation of petroleum-exporting countries, OPEC, will come to an agreement on 30 November to restrict production and as such, raise oil prices. The health care sector was under pressure on negative company news from Eli Lilly and Medtronic.
Given our more positive outlook for global growth, we have become more positive on equities. We advise to invest more in cyclical sectors such as industrial stocks and less in interest-rate-sensitive sectors such as telecommunication and consumer staples.
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