November 2024 Update
Last week was a significant week regarding new information for the US markets. Of course, the US Presidential election took place on Tuesday, and two days later, the US Federal Reserve cut its interest rate by 0.25%. Of these, that interest rate cut was likely the easier to forecast and overshadowed by the election. I’ll get into further detail on the markets and the election outcome, but if you’re not particularly interested, know that the stock market rallied the following day. Things were largely positive in both Canada and the US.
Overall, through October, the fund gained just over 4%. I haven’t made significant changes to the portfolio; however, some additions are being considered. While we currently hold some alternative investments, I am considering expanding this. One of the advantages of the fund is that we can take on positions and holdings that might not be possible for most individual investors. Nothing is imminent; however, I am investigating some private equity and credit options that might complement the fund well.
For the remainder of 2024, I think that things are stable and steady. We likely won’t see enormous moves one way or the other unless there are unexpected things that happen. From a geo-political sense, the situation in the Middle East seems to be cooling to some extent. The Ukraine war is less impactful on things like the supply chain and impact on the markets as well. It’s a bit of a breather from where we have been in the past couple of years.
Now, I’ll delve a little deeper into the Us election and maybe what we could see as some of the impacts. If this doesn’t interest you, you can stop reading or watching here and just know that I think we’re in a good spot. If you want to know more about why I think that, and get a little more technical, stick with me! Before I even begin this, let me make it clear that I’m not getting into whether I agree or disagree with Trump. This is not a political endorsement or attack; it’s just looking at his re-election and his plans from an economic and financial market perspective. I’m trying to gauge what we can expect as investors, not change your opinions and thoughts on red baseball hats!
The morning after the US election, stocks rallied, and the bond market took a less optimistic view of things. There are a few reasons for the divergence. First, let’s talk about stocks. The overall feeling is that stocks will rise with Trump because he will continue the tax cut that is set to expire in 2025. That tax cut keeps more money in the pockets of the corporations that you own shares in, and as a result those shares are worth more money. It makes sense! The other major considerations for why stocks rose and could do well under Trump are deregulation and increased merger and acquisition activity. This is part of the reason why significant gains were seen in the financial sector, as banking is typically a beneficiary in that area. Typically, the S&P 500 has a good year in the first year of the presidency, so things look good at this point. A good final 6-8 weeks of 2024, followed by a good 2025 sounds optimistic for us, as investors!
Unfortunately, while the stock market rallied, bonds sold off and let me try to explain why. While Trump does plan to maintain the tax cuts, he has discussed eliminating taxes for veterans, eliminating taxes on social security and things of that nature. It’s not that this is a questionable policy, it’s just that it gets expensive. It means that the deficit the US runs already (which as a percentage of GDP is markedly higher than ours in Canada, by the way), is likely to grow. Bond investors could demand a higher interest rate to finance that debt, which is part of the reason that the bond market sold off.
Another factor is that with Trump having policies of mass deportation and tariffs, those are almost surely inflationary. When inflation rises, interest rates are heading higher. That is not the news that bond investors look for, and taken to its full end this will mean a slowing in the US economy.
It will be an interesting term for Trump as he comes into a very different economy than what he inherited in 2016. At this point, the economy is in really good shape. Inflation (which was the largest factor in the election, in my opinion) has come down significantly. Unemployment is not a huge concern at this point, and GDP in the US is quite high. Maintaining this, is not easy and it will be intriguing to see how the Republicans navigate that challenge.
Until next month!
Vic
