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Elevage Partners

Thierry Hasse: Markets rally after clear Election Day results

Last week was a good one for U.S. investors: All equity indices closed at or near all-time highs. Plus, the Federal Reserve delivered another reduction in interest rates to support the economy.

Chief Investment Officer Thierry Hasse
The S&P 500 Index set its 50th record of 2024, briefly eclipsing the 6,000 milestone, while the Dow Jones Industrial Average had its best week in a year trading above the 44,000 level for the first time. The strong gains across the board for equities were due essentially to the huge rally on Wednesday following the U.S. elections. These strong price moves were the result of investors anticipating the pro-growth domestic policies of the new Republican administration. Financial markets were also undoubtedly relieved that a clear winner was declared rapidly. We had long argued that a contested election would have been a disaster for equity markets.

A volatile bond market

In the bond markets the week was extremely volatile. The 10-year note yield rose by 20 basis points on Wednesday as it became clear that besides the presidency the Republican Party had taken control of the US Senate and would most likely retain control of the House of Representatives. (Vote tabulation is still under way in some districts.) Having complete control of Congress would enable the Trump administration to enact further tax cuts and increase defense spending. These measures would add trillions to the national debt, and investors would certainly require higher Treasury rates to fund ever increasing budget deficits.

Another interest rate cut

Financial market participants had little time to fully digest the implications of the U.S. elections when the Federal Reserve’s Open Markets Committee meeting was held on Thursday. The meeting delivered a 25 basis points rate cut, bringing the Fed Funds rate to a range of 4.5% to 4.75%. Fed Chair Jerome Powell continues to emphasize that the U.S. economy is still strong. The reduction in interest rates is designed to bring monetary policy to a more neutral stance given the fact that inflation measures continue to decrease toward the Fed’s 2% goal.

Inflation report due this week

This week it will be interesting to see if equity markets can build on those strong gains or if we enter a period of consolidation. After all, at 22 times 2025 expected earnings the S&P 500 is not cheap and a lot of the good news might be priced in. On Wednesday the Bureau of Labor statistics will release the Consumer Price Index for October, which is expected to show a slight acceleration from September. The bond market, as we have observed recently, has no patience for negative surprises.

The information contained herein represents the views of Elevage Partners at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein In addition, there can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Any statement non-factual in nature constitutes only current opinion which is subject to change. These materials are provided for informational purposes only and do not constitute investment advice. Any reference to a security listed herein does not constitute a recommendation to buy, sell, or hold such security. Past performance is no guarantee of future results. The historical returns of any securities and/or sectors mentioned in this commentary are not necessarily indicative of their future performance.

Important Disclosure(s)
The information contained herein represents the views of Elevage Partners at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein In addition, there can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Any statement non-factual in nature constitutes only current opinion which is subject to change. These materials are provided for informational purposes only and do not constitute investment advice. Any reference to a security listed herein does not constitute a recommendation to buy, sell, or hold such security. Past performance is no guarantee of future results. The historical returns of any securities and/or sectors mentioned in this commentary are not necessarily indicative of their future performance.