Monthly Report November 2024

Financial Markets on the Move

On the very last day of October – fittingly Halloween – markets took another “spooky” turn, leading many stock indices to end the month slightly in the red. The US benchmark S&P 500 fell by 1.0% in October, though it remained up by 20% year-to-date. October marked only the second month of losses in 2024, following April. Remarkably, this year’s performance stands out as the strongest for a US election year in recent memory. The last time the S&P saw such a robust showing in an election year was in 1936, when it gained 28% through October.

The tech-heavy Nasdaq Composite rose nearly 22% since the start of the year, while the MSCI World Index posted gains of just over 15%. In contrast, Switzerland’s Swiss Leader Index (SLI) lost 3.3% in October, but as of November 1, it stood 10% above its end-2023 level. Europe’s STOXX 600 fell by 3.3% and was up just 7% for the year so far. A primary drag in Europe has been France, where the CAC 40 slipped nearly 2% year-to-date.

Profit-taking was also observed in China, where the Shanghai Composite dipped 1.7% after an impressive October rally of nearly 30%, leaving it 10% up year-to-date. Meanwhile, Japan’s Nikkei 225 gained 3.2% in October, continuing its steady upward trend after a 26% dip in early August, and its year-to-date gain stood at 14%.

One concerning trend was the rise in 10-year US Treasury yields. Just before the unexpectedly high 0.50% rate cut by the Federal Reserve on September 18, yields stood at 3.65%. They then began climbing steadily, especially in late October, reaching 4.38% by November 1. As a result, the iShares 20+ Year Treasury Bond ETF (TLT) dropped 5.8% in October, with an 8% decline year-to-date.

Gold, meanwhile, has defied headwinds of higher long-term yields and a stronger dollar, rising by 3.4% in October and achieving a 33% gain year-to-date in US dollar terms.

The US Dollar Index DXY rose 2.9% year-to-date, while the greenback gained 3.4% against the Swiss franc, reaching CHF 0.87. The EUR/CHF exchange rate edged up by 1.5% to CHF 0.942 over the same period.

Currently, market participants are captivated by the US presidential elections and the high-stakes clash between Kamala Harris and Donald Trump. Polls suggest a neck-and-neck race with no clear frontrunner, while betting markets[1] give Trump a slight edge, with a 55% probability versus 45% for Harris (as of November 2, 2024, 22:00 CET). Financial markets are increasingly pricing in a Trump victory, potentially even a “Red Sweep,” implying Republican control of the presidency, Senate, and House of Representatives.

So-called “Trump trades” would likely include a stronger dollar, rising long-term yields, increased gold and Bitcoin prices, and a booming US stock market.

Unsurprisingly, the US elections will dominate trading in early November, making tactical allocations based on seasonal trends unwise. Yet, it is worth keeping such trends in mind:

• November is the second-best month for the S&P 500
• best month for the Nasdaq
• second-best month for the MSCI World Index
• second-best month for Germany’s DAX
• best month for the Nikkei 225
• November marks the start of a seasonally strong period for gold, lasting until February
• November is also the final month of the seasonal downturn in crude oil. Seasonal trends are neutral in December and January, then turn strongly positive from February to June
• third-best month for the US Dollar Index (DXY)
• best month for USD/JPY

One cannot help but feel, however, that many of these seasonal trends may already be priced in.

„It’s the economy, stupid“

Regarding the US election, we anticipate a Trump victory and a “Red Sweep”. However, markets appear to have largely priced in this outcome, so major reactions may not occur once the dust settles. Notably, a sense of unease persists among the US public about the economy, which feels at odds with solid macroeconomic indicators such as strong growth, low unemployment, and declining inflation. Is it the “gut feeling of the masses” sensing impending troubles that retrospective official data have yet to capture?

Against this backdrop, we remain slightly overweight in equities but would consider taking profits should stocks rise sharply post-election. The expectation of a year-end rally appears increasingly overstated. In our view, US equities, particularly large-cap tech, remain the most attractive choice, while in Europe, we see opportunities in the banking sector.

In high-quality government bonds, we have slightly reduced duration, though we view the recent rise in yields since mid-September as overdone. Therefore, we consider a further allocation to medium and longer durations prudent as a hedge against economic slowdown. Within corporate bonds, we prefer investment-grade over high-yield bonds. Additionally, we maintain a smaller position in inflation-protected bonds to guard against unexpected inflation shocks. Our relatively high allocation to gold remains unchanged.