Insights & Resources

After a dramatic campaign, US voters elected Donald Trump on November 5^th with a GOP majority in Congress. Investors signaled their enthusiasm for the results with inflows of $141 billion into US equities during November, the highest four-week total on record. Major North American stock indices surged ahead to close November at new highs, with the S&P/TSX Composite Index up 6.37%, the S&P 500 Index up 5.83% and the Nasdaq Index up 6.29%. Globally, the MSCI World Index rose 4.88% and the MSCI EAFE Index rose 0.58%.  The FTSE Canada Universe Bond Index rose 1.68% for the month.

Monthly market developments

• October and Q3 data released during November gave mixed signals about the Canadian economy. Job growth slowed to 14,500, down from 47,000 in September, but the unemployment rate held at 6.5%, after declining in September for the first time since January.
• Q3 GDP growth remained soft at 1% on a quarter over quarter basis, annualized, but consumer spending climbed 3.5%, likely aided by interest rates that have been falling since June. The Q3 GDP reading was well down from 2.1% in Q2 and on a per-capita basis GDP fell for the sixth consecutive quarter as population growth outpaced economic expansion.
• Inflation rose to 2% in October, according to Statistics Canada, up from a surprisingly low 1.6% in September that was driven by a sharp drop in gas prices. The October number is still within the Bank of Canada’s (BoC) target range.
• Stimulus measures announced by the federal government in November, including a temporary GST holiday on certain items, and an anticipated BoC rate cut of at least a quarter point in December could be further tailwinds for consumer activity.
• Trump’s unexpected November 25^th announcement on social media of potential tariffs of 25% on Canadian and Mexican imports next year could be a significant economic headwind in 2025. The actual timing, targets and scale of any tariffs will likely remain unknown until Trump takes office, at the earliest. Canadian markets took the news in stride, suggesting a view that Trump’s position is negotiable and that his focus on illegal immigration and drugs applies more to Mexico than Canada.
• US inflation data remained relatively benign but suggested some underlying upward pressures. The October reading came in at 2.6%, year-over-year, annualized, up from 2.4% in September. The Fed’s preferred inflation gauge, the core PCE price index (excluding food and energy), was 3.3%, annualized, the same as in September.
• The all-important US consumer stepped up in October as retail and food-service sales rose again, up 0.4% in October from September, according to the US Department of Commerce. The resilience of the American consumer was underlined by a sharp upward revision of September sales data for a gain of 0.8% from August, twice the initial estimate of 0.4%.
• The “second estimate” of US Q3 GDP released by the U.S. Bureau of Economic Analysis at the end of November confirmed the previously announced growth rate of 2.8%, a slight dip from 3% in Q2. The Atlanta Fed’s Q4 GDP estimate at month end was upgraded and stands at +2.7%.
• The US employment picture improved marginally (+12,000) in October and the unemployment rate held at 4.1%, according to the U.S. Bureau of Labor Statistics. Jobs continued to trend up in health care and government while temporary help declined. Strikes during October pushed manufacturing employment data down.
• While president-elect Trump has generated debate with some of his cabinet nominations equity markets rose on news that he had picked financier Scott Bessant for the key role of Secretary of the Treasury.
• As expected but overshadowed by the sweeping election results two days prior, the Fed cut the federal funds rate by a quarter point to 4.5-4.75% on November 7^th.
• The Bank of England also trimmed interest rates by a quarter point to 4.75% in November and indicated a close focus on inflationary pressures will guide further rate decisions going forward. Q3 GDP growth in the UK was flat on weak exports and October inflation data recorded a 3.3% increase, year over year, higher than expected. After falling in October UK equities rose in November.
• Eurozone inflation rose to 2.3%, annualized, in November, above the European Central Bank’s (ECB) target of 2% and up from 2% recorded in October. The rise is not expected to derail an anticipated ECB rate cut of a quarter point in December. However, business activity dropped off sharply in the eurozone in November, leading to some speculation of a half-point interest rate cut. Germany, the bloc’s largest economy, continues to struggle as exports fell and revised Q3 data indicated essentially no GDP growth in the period.
• Japanese inflation rose in November to 2.6%, on an annualized basis, pressured by higher energy and wage costs. Q3 GDP growth of 0.9%, quarter over quarter, was better than anticipated and supported by firm consumer spending. The Nikkei 250 equity index closed the month slightly down but remains ahead YTD.
• Economic data for China released in November indicated some signs of positive momentum, particularly in consumer behavior, possibly aided by the series of major economic stimulus announcements during October and November. A further challenge for a slower Chinese economy going forward could be Donald Trump’s post-election assertions that he will apply new tariffs on Chinese imports.

How does this affect my investments?

The US election results could influence markets well into 2025. Donald Trump’s policy agenda is widely seen as strongly pro-business and pro-growth, and one that could directly benefit corporate profits and market returns. However, aspects of it could also be potentially inflationary, which may complicate the Fed’s longer-term path towards lower interest rates. One possible source of inflation – and economic disruption – could be US trade tariffs targeting Canada, Mexico, China and the European Union. If applied, some measures may ultimately raise prices for American consumers, a development that might then hamper US economic growth. But for the moment markets are expressing continued optimism and as we enter December investors are poised to finish 2024 with significant gains.

Regardless of where we are in the market cycle, it’s important to take a disciplined approach to investing and stay focused on your long-term goals. Ongoing monitoring and reviewing of your portfolio also ensure it remains on track. Diversifying investments reduces risk as well.