This update was filmed on Thursday 10th November and any figures quoted cover the entire month of October unless otherwise stated.
The US election looms large this month. But first things first.
October was a mixed month. We saw gains in Japanese equities of 5%, and had reasonable returns from most developed stock markets. However, it was a bad month for government bonds, which are normally viewed as more safe assets. We’ve been reducing our exposure to government bonds over the past two months so we didn’t bear the full brunt of that sell-off in bonds. Overall we saw small losses in some portfolios, and subdued gains in others.
The US election
Pollsters told us that a Donald Trump victory with a Republican controlled Congress was the least likely outcome. In spite of the shock that Trump’s victory represented, markets handled the shock well.
At around 5am UK time on Wednesday morning, FTSE futures were down by around 4%. Gold had risen by 3%. But by the end of the day the UK market was up, and by the time the US markets closed they were up 1%.
At the same time, it was a bad day for bonds, as investors worried about inflation down the road. The Mexican peso also fell by 8% and the Mexican stock market was down too – so it was a bad day for some emerging markets. But generally we saw a very strong, positive response from markets.
Our portfolios before the election
In the run up to the election we deliberately held some more conservative assets. We owned gold as a hedge against political uncertainty and rising inflation. We held government bonds with a short time to maturity, which has avoided some of the worst of the recent falls in bonds. We also held a very low weight in emerging market assets, which have suffered the most from Trump’s victory.
Looking forwards, there’s a great deal of political uncertainty. We still don’t know what Trump really stands for.
That said, markets appear reassured by Trump’s more conciliatory acceptance speech. Investors hope we might get “Trump-lite”. This could mean pro-business policy, including cutting regulation, spending more money on infrastructure and cutting taxes on business. This combination could encourage American companies to bring back money from abroad and invest it at home in the US. All of this would boost US growth and equity prices.
At the same time, Trump has a long-standing commitment to protectionism. Both tariffs and government spending would probably be inflationary, so this is bad news for bonds as well as for American trading partners abroad. On balance, the prospects for developed markets look positive, but for emerging markets and bonds Trump’s victory represents a dose of uncertainty.
About this update: This update was filmed on Thursday 10th November and any figures quoted cover the entire month of October unless otherwise stated. Data sources: Bloomberg and Macrobond.
Risk warning: As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past or future performance indicators are not a reliable indicator of future performance.