Turning the page

U.S. elections bring more clarity than expected
Earnings season reflects resilience
PMI’s showing mixed business activity in different regions

November brought much needed clarity to the markets, with a clear U.S. election outcome reducing uncertainty and driving a strong post-election rally. Corporate earnings showed resilience, with many companies delivering strong results, further boosting confidence in the economy. At the same time, global data revealed challenges, while the U.S. economy stood out for its strength. As markets head into a seasonally strong period, investors are focused on upcoming policy changes and economic trends to guide their next moves.

As a result, developed markets’ equities (measured by MSCI World index in EUR) have risen by 7.5%, while emerging markets’ equities (measured by MSCI Emerging Market index in EUR) have declined 0.9%. During the same period yields on bonds have declined, with 10-year U.S. Treasury bond yields decreasing to 4.18% from 4.28% a month ago, while German 10-year Treasury bond yields have decreased to 2.08% from 2.4% a month ago.

Election clarity restores market confidence

Election season brought its share of twists and surprises, but the outcomes are now largely settled. Donald Trump’s decisive win, along with Republican control of the Senate and the House of Representatives, defied predictions of a close or disputed race. Leading up to the election, market volatility increased, as is often the case during uncertain times. Now, with clarity restored, volatility has subsided, and the S&P 500 delivered one of the strongest-ever post-election rally, rising 2.5%. Although uncertainty remains over which campaign promises will translate into actionable policies, when they will be implemented, and their potential effects, the underlying market fundamentals remain broadly positive. As attention shifts to anticipated policy changes, these fundamentals are likely to continue guiding the market’s trajectory.

Earnings drive optimism

This earnings season has been marked by robust corporate performance, with results generally exceeding expectations in key sectors. NVIDIA (leading semiconductor and AI technology company) has taken center stage, as the world’s largest company by market capitalization delivered strong earnings and revenue growth fueled by increasing demand for AI-driven solutions. While sales and profits showed impressive year-over-year growth, the company’s forward guidance signaled a modest slowdown in momentum. Other corporate giants have also reported solid results, reflecting resilience in consumer spending and sustained demand. However, cautious management outlooks in some cases underscore ongoing uncertainties around economic conditions and future demand trends. Overall, the earnings season has reinforced confidence in the underlying strength of the economy, though markets remain attentive to signals of potential slowdowns in key growth drivers.

Mixed signals in global PMI trends

Recent data from the November S&P Global Purchasing Managers' Index (PMI) highlight ongoing economic challenges in global markets. The eurozone composite PMI dropped to 48.1, the lowest since January, signaling contraction (readings below 50 indicate shrinking activity). Germany, the region’s largest economy, has been a key driver of this slowdown, with its composite PMI falling to 47.3 and staying in contraction since June. Manufacturing weakness continues to weigh heavily, with both German and eurozone manufacturing PMIs contracting since mid-2022. In contrast, the U.S. economy stands out for its strength, as the composite PMI rose to 55.3 in November - a 31-month high, boosted by strong performance in the services sector. These contrasting trends highlight the relative resilience of the U.S. economy, which continues to outperform many international markets.

Global Composite PMI Trends: U.S., Eurozone, and Germany (Jan 2022 – Nov 2024)

Source: Investing.com

Market view

As the post-election landscape takes shape, markets are set to focus on long-term fundamentals, supported by solid economic conditions and earnings growth, led by the U.S. While gains may moderate after a strong rally since October 2022, November and December historically offer seasonally strong performance, particularly in election years. However, some gains from the post-election rally may already be priced in, and policy uncertainty could spark periodic volatility, but assuming no major shocks, pro-growth policies and a resilient economy should provide a stable foundation for the markets to navigate ahead. Investors will likely keep a close eye on economic data and policy developments to gauge the market's next direction.

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