In November, Donald Trump was returned to the White House with an across-the-board sweep for the Republicans, retaking office and securing a majority across Congress. A platform of tax cuts, tariffs, and government efficiency (the newly created DOGE, headed by Elon Musk and Vivek Ramaswamy) spurred an enthusiastic stock market response, with US equities up over 6% in the month, handily outperforming all other global markets.
Global shares
The US dollar rose, benefitting from a “flight to quality, flight to safety,” even though the US (Trump) was the source of increased global uncertainty. As such, unhedged global shares (that benefit from a falling AUD) rose. Most of the gains in the MSCI World indices were driven by its ~70% allocation to US. Countries subject to proposed Trump tariffs, ranging from Mexico and Canada to China and Europe, delivered positive returns, but underperformed relative to US shares.
Australian shares
The Australian share market has a significantly higher allocation to resource companies compared to other global markets. November proved challenging for many material and energy stocks, as weaker commodity prices weighed on expected revenues. Concerns about the impact of tariffs on global markets added to the uncertainty, affecting forward-looking valuations.
The basic logic is that if Trump puts up large (larger) tariffs on China, say, targeting China’s steel exports, then other countries may follow suit, and China’s excessive steel production (far greater than its local market can absorb) may need to be curtailed, which would place downward pressure on Chinese demand for steels raw material inputs from Australian producers (iron ore, coking coal). The other main impact was slightly more indirect, in that a stronger US dollar tends to impact commodities in general, given they are denominated in US dollars, which makes them more expensive, all else equal, to buyers in the global market.
The month’s sector performance is tabled below. Financials remained strong, continuing a positive run for the banks that has been going for most of the year. There is some concern for the degree of enthusiasm being shown in the bank’s share prices, noting that CBA now trades at almost 25x forward earnings and is widely regarded to be the most expensive bank in the world, even if you control for its sector-leading return on equity. Korean banks trade at closer to 7x, European banks at 10x, and US banks which in some instances have higher returns on equity, trade at a discount to CBA’s price to book multiple.
Fixed income
Yields initially rose but fell towards the end of the month, making for a volatile but unremarkable set of price movements for international fixed income.
Economic data
New Zealand remains in a recession, and the RBNZ is responding by cutting rates aggressively. Towards the end of the month, the policy rate was reduced by 0.50% further. US jobs and wages growth was very low at just +12,000; however, this was likely impacted by the hurricane and industrial action. We think it is far more likely that employment growth will continue to run at ~170,000 per month.
Australian inflation remains sticky at ~3.5%, which remains outside the RBA’s target band of 2-3%. That means no rate cuts this year; rather, May 2025 looks more likely. Political pressure is being heaped upon the RBA, forcing a restructure. However, once that dust settles, the basic mechanics remain unchanged, employment growth is robust, and inflation is too high to support near-term easing.
Investment outlook
The 2025 outlook/estimates suggest returns of 5-6% for US equities and 8-10% for European, UK, and Japanese equities, with a more uncertain but higher return target for Emerging markets (in practice, mainly China) equities.
Reflecting on estimates from this time last year, leading banks: Goldman’s (GS), Wells Fargo (WF), JP Morgan (JPM) and others below were all too pessimistic. Note that the current S&P500 level of 6032 outperformed even the most bullish prior year estimate by over 10%.
The most bearish estimate, 4200 from JPM, would have cost you quite dearly had you positioned accordingly. The JPM strategist was ‘moved on’ from the bank in early June, and their price target was revised up to 5200 shortly afterward. While it is an interesting insight into the cutthroat dynamics of global equity strategy, and ‘sell-side’ research, we’d suggest long term investing has an advantage in that you are generally better off ignoring short term “thumb in air” price targets, and instead maintaining a focus on your long term strategy adapting it to ensure it remains aligned to your unique goals and objectives, consistent with your underlying willingness and ability to tolerate risk.
In many instances, investing, for the long run, is about common sense, diversifying intelligently across asset and sub-asset classes, and letting your capital compound higher. Given that bonds, cash and credit all look favourably priced, as do global equities (ex the US), modest portfolio tilts that are close to your neutral or strategic asset allocation weights seem prudent given the outlook.
EWK Investment Committee
Important information
Past performance is not a reliable indicator of future performance.
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