Wall Street reacted positively to Donald Trump’s reelection, with significant gains in major indices, particularly the Russell 2000, which rose by 10.8%. Meanwhile, Europe struggles to keep pace, with mixed performance across its indices. Concerns about France’s political stability impact investor sentiment, especially with a potential censure vote against the government. Global economic indicators show mixed trends, including low Chinese bond yields and Trump’s warning to BRICS nations regarding currency competition. Key economic updates and notable stock recommendations are also highlighted.
Wall Street’s Response to Trump’s Reelection
As the year draws to a close, if you’re curious about Wall Street’s reaction to Donald Trump’s reelection, just take a look at the November figures. The Dow Jones saw an impressive increase of 7.5%, while the Nasdaq rose by 6.2%, and the S&P 500 climbed by 5.7%. Leading the pack, however, was the Russell 2000, which focuses on smaller U.S. stocks and surged by 10.8%. Analysts had previously indicated that smaller companies would be the primary beneficiaries of Trump’s return to the presidency.
In contrast, Europe is finding it challenging to keep pace. The gains observed in the U.S. have occurred at the expense of other global economies, a phenomenon often referred to as the ‘Trump Trade.’ Within Europe, the DAX index is currently the standout performer for 2024, appreciating by 2% in November despite challenges facing Germany’s economy. Meanwhile, the French CAC40 experienced a decline of 2.35% in November and has dropped over 4% since the start of the year.
France’s Political Climate and Global Economic Trends
As the United States enters December, the S&P 500 has achieved a remarkable 26.5% increase since January 1, setting the stage for what is traditionally known as the ‘year-end rally.’ Statistically, December is the most favorable month for investors, with a history of 70 positive months for the S&P 500 in the past 96 years (according to Yardeni Research).
Turning our attention back to France, the nation has become a vulnerable link in the eurozone following the dissolution of the National Assembly on June 9. There are concerns that Prime Minister Michel Barnier’s government may face a vote of censure soon. Financial markets are closely monitoring this situation, as it could trigger a regional crisis, prompting investors to shift their focus back to the U.S. Notably, the S&P agency has maintained France’s financial strength rating at ‘AA-‘ with a stable outlook, which could have been at risk.
On the macroeconomic front, the yields on 10-year Chinese bonds have dipped below 2% for the first time since 2002, indicating market expectations for further rate cuts by the Chinese central bank to support economic recovery. However, disappointment looms as the local Communist Party has withheld the minutes from its November meeting, leaving investors uncertain. While there are signs of a slight uptick in November’s manufacturing PMI indicators, experts attribute this to preemptive over-shipments in anticipation of rising tariffs, with service PMIs showing a less favorable trend.
In a new twist, Donald Trump has shifted his focus from Canada, Mexico, and China to the BRICS nations, demanding they refrain from creating or utilizing a competing currency against the dollar. Otherwise, he warns of imposing 100% tariffs, a move that could jeopardize their access to the lucrative U.S. market.
Key Updates for the Week Ahead:
- In political developments, Trump has appointed Charles Kushner, the father of his son-in-law, as the U.S. ambassador to France.
- Joe Biden faces backlash after pardoning his son Hunter, drawing criticism even from former supporters.
- In the Middle East, the conflict continues to escalate, particularly in Syria after a ceasefire in Lebanon.
- UN negotiations on plastic have failed to yield a robust agreement.
- This week features significant events, including a speech from the Fed chair and U.S. employment statistics for November, as well as remarks from ECB President Christine Lagarde.
- Corporate highlights include updates from companies like Prosus, Salesforce, and Marvell.
- In a lighthearted moment, Princess Kate declared that love is the ultimate Christmas gift, a sentiment that contrasts with childhood memories of receiving an orange as the best treat.
As the week begins in the Asia-Pacific region, stock indices show moderate gains in Australia, India, and Hong Kong, with Japan and mainland China experiencing stronger increases of 0.6% and 0.8%, respectively. However, South Korea is facing a slight decline. In Europe, leading indicators are bearish, reflecting nervousness stemming from France’s political developments.
Currently, the CAC40 is down by 1% at 7165 points shortly after opening, while the SMI is down by 0.3% at 11,737 points. The Bel20 shows a minor increase of 0.1% at 4232 points. Investor sentiment in Paris is cautious as the National Rally prepares to vote on a censure motion against the government, particularly concerning the Social Security budget. The party president, Jordan Bardella, remarked that unless a miracle occurs, a censure vote is imminent.
Today’s Economic Highlights
The session will feature the second reading of manufacturing PMI indices from major economies, with the U.S. ISM manufacturing index set for release at 4:00 PM. Here’s a quick overview of key indicators:
- Euro: 1.0519 USD
- Ounce of Gold: 2623 USD
- Brent Crude: 72.16 USD
- 10-Year U.S. Treasury Yield: 4.22%
- Bitcoin: 96,700 USD
Notable Recommendation Changes
- Air Liquide: Upgraded by JP Morgan from neutral to overweight, with a price target raised from 161 to 195 EUR.
- Airbus: Bernstein maintains outperform rating, increasing the price target from 160 to 166 EUR.
- Akzo Nobel: JP Morgan upgrades from neutral to overweight with a target price of 70 EUR.
- ArgenX: BNP Paribas Exane keeps outperform rating, raising the target from 640 to 670 EUR.
- Arkema: Deutsche Bank maintains buy recommendation, lowering target from 112 to 105 EUR.
- AstraZeneca: Baptista Research upgrades from hold to buy, adjusting the target from 88.80 USD to 87.10 USD.
- BASF: Deutsche Bank upgrades from hold to buy, increasing price target from 50 EUR to 55 EUR.
- Burberry: Deutsche Bank upgrades from hold to buy, raising the target from 860 GBX to 1180 GBX.