Monthly summary – November 2024: Once the election results were in, focus shifted torwards likely economic implications

Monthly comment

November saw heightened volatility across financial markets, driven by the dramatic US election, Trump’s victory, his controversial cabinet nominations, fluctuating interest rates and currencies, geopolitical tensions as well as the earnings season. Donald Trump secured both the Electoral College and the popular vote. Republicans gained control of the Senate and the House of Representatives, paving the way for a potential shift in policy direction. This outcome sparked a mix of optimism and uncertainty among investors.

Economic implications post-election

Markets quickly shifted their focus to the economic implications of Republican policies and the cabinet appointments once the election results were in. Trump’s proposed agenda included significant tax cuts, deregulation, and stricter immigration policies. However, his “America First” stance which is centered on renegotiating trade agreements and imposing higher tariffs to partially fund tax reductions, raised concerns about widening fiscal deficits. Trump’s victory was well received by a large part of the business community, but at the same time some concerns around potential increased protectionism and trade conflicts with major trading partners were raised. Initial market reactions included a rise in long-term interest rates as investors priced in potential inflationary pressures.

Swift cabinet appointments

By month’s end, Trump had announced nominations for all key cabinet positions, pending Senate approval. Notably, hedge fund veteran, Scott Bessent, was tapped as Treasury Secretary. Bessent’s track record of fiscal conservatism and skepticism toward extensive tariffs suggested an effort to reassure the markets and stabilize fiscal policy. Nevertheless, tensions regarding Trump’s economic agenda remained apparent, leaving questions about how Bessent would manage competing priorities.

Eurozone showed signs of weakness

In the Eurozone, deteriorating economic data raised fears of a deeper slowdown, and a combination of rising wages and declining activity in manufacturing and services presented a challenge for the European Central Bank (ECB). Political deadlocks in key economies like Germany and France amplified uncertainty. Expectations for decisive ECB action rose which led to continued euro depreciation, with the currency reaching its lowest level since 2022.

US outperformance

In contrast with the Eurozone, the US economy demonstrated resilience, particularly in the services sector in November. This strength bolstered the dollar and drove interest rates higher early in the month. However, the rates eased later on following favorable inflation data, and the announcement of a moderate Treasury Secretary nominee.

Healthcare sector underperformed

The earnings season was overall good, with most sectors performing well. However, healthcare lagged, marking one of its weakest relative months in recent times. This underperformance mainly was linked to post-election uncertainty and Trump’s nomination of industry critic Robert F. Kennedy Jr. as Health Secretary. Despite stable earnings reports, sector sentiment was negatively impacted.

Relections from the managers

The healthcare sector had a particularly tough month relative to the stock market overall, but still ended the month up in euros. The sector has been struggling for a while, partly due to tech stocks performing so strongly and partly due to increasing uncertainty regarding potential cuts in healthcare spending following the American elections.

Concerns within the investor community

Donald Trump’s nomination of Robert F Kennedy Jr to serve as US secretary of health and human services, and the establishment of the DOGE group, with entrepreneurs Elon Mush and Vivek Ramaswamy at the helm has caused concern within the investor community. The potential policy adjustments and spending cuts are seen as negative for the pharmaceutical industry. Additionally, cuts to the federal grants towards Medicaid are also being contemplated. The main concerns in the short term are how much any potential changes would mean lower total compensation to the hospitals, and also how much markets for the insurance companies operating in Medicaid would worsen.

Vaccinations and related guidelines, documentation, and side effects are controversial for many Americans and there are many skeptics, primarily among Republicans. They feel heard and represented by RFK. However, any major changes in the short term are unlikely.

We still believe the sector has potential to deliver

The interest in cyclical stocks seems to be increasing, while defensives, such as healthcare stocks, are not currently viewed by the broader investor group as likely 2025 winners. In our view, valuations are attractive, and that the sector has the potential to deliver positive news flow in the coming year. The fact that it is not the most favored sector, could in fact be a blessing in disguise. Low expectations combined with good prospects to perform well is something which makes us more comfortable and ought to lead to good risk/reward. If interest rates continue to come down, which is our main scenario, small and midcap stocks could come back into favor.