The "Trump trade" keeps pushing markets higher

[UNITED STATES] The "Trump trade" continued to fuel animal instincts, sending markets soaring to new highs amid a week in which US President-elect Donald Trump threatened even harsher trade levies on both allies and rivals.

Aside from the promise of tax cuts and deregulation, investor mood was buoyed by a healthy US economy, predictions of at least three more US Federal Reserve interest rate decreases over the next year, and solid consumer spending.

Despite the fact that US two-year and 10-year Treasury rates are at their highest levels in months, geopolitical concerns persist, and economists worry that Trump's policy ideas may reignite domestic inflationary pressures.

The ongoing "Trump trade" phenomenon has demonstrated remarkable resilience, defying expectations of a short-lived market trend. Analysts point to the lasting impact of policies implemented during Trump's presidency, which continue to shape investor behavior and market dynamics. This persistence has led to a reevaluation of long-term economic strategies among both institutional and retail investors.

On Wall Street, equities experienced their greatest month in 2024, with predictions that a technological revolution, unrestricted energy markets, and financial deregulation will enhance company activity and earnings.

The Dow Jones Industrial Average surpassed 45,000 points for the first time in history, ending at a record 44,910 points on Black Friday, representing a 2.37 percent increase for the week.

The benchmark Wall Street index is now up 7.54 percent for the month and 19.6 percent in 2024.

The S&P 500 closed the week at a record 6,032.38 points, up 1.41 percent.

This wide index is up 5.73 percent in November and 26.47 percent for the year to date. Last week, the tech-heavy Nasdaq increased 1.3% to 19,218.17 points, for a November gain of 6.21 percent and a year-to-date return of 28.02 percent.

The sustained market rally has not been without its critics. Some economists warn of potential overvaluation in certain sectors, particularly in technology and energy. They argue that the current market exuberance may be disconnected from underlying economic fundamentals, drawing parallels to previous market bubbles. However, proponents of the "Trump trade" counter that the ongoing structural changes in the economy justify the higher valuations.

In Singapore, the Straits Times Index (STI) began November 25 around the previous week's new high of 3,766.93, but lacked sufficient bid tone to push higher. It closed the week down 0.2 percent, at 3,739.29 points.

Still, the STI has returned 15.4% in the last five months.

The STI valuation is much lower than when it reached its all-time high of 3,906.16 in October 2007. It currently trades at 1.3 times its book value, compared to 2.5 times 17 years ago.

According to Singapore Exchange data, institutions were net buyers of Singapore equities for much of the week, with Yangzijiang Shipbuilding Holdings (which joined the MSCI Singapore index last week) leading the way, followed by OCBC Bank, Keppel, CapitaLand Integrated Commercial Trust, Seatrium, and others.

The global impact of the "Trump trade" has extended beyond U.S. borders, influencing markets worldwide. In Asia, investors have been closely monitoring the ripple effects of U.S. economic policies on regional trade dynamics and currency fluctuations. The ongoing trade tensions between the U.S. and China, a hallmark of Trump's presidency, continue to shape investment strategies across the Pacific, with many Asian markets experiencing increased volatility as a result.

Going into the end of the year, most of what happens on global markets will continue to be determined by developments, data flows, and news flows from the United States.

The most recent figures suggest that US personal consumption has remained strong. According to the most recent inflation figures, prices increased by 2.3% over the previous year, as expected. Core inflation, at 2.8%, was also within expectations. Meanwhile, the US labor market remains solid.

Has the market gotten ahead of itself? Perhaps. But, as traders sometimes say, the trend is your friend. So far, the trend has been bullish, and the upside momentum is still intact. As we approach the end of the year, there is a good chance that a Santa Claus rally will take place. And this might continue into the new year, leading up to the US presidential inauguration.

As the market continues to ride the wave of the "Trump trade," attention is increasingly turning to the potential long-term consequences of these economic policies. Environmental, Social, and Governance (ESG) focused investors are particularly concerned about the rollback of environmental regulations and the potential impact on climate change initiatives. This has led to a growing divergence in investment strategies, with some funds doubling down on traditional energy sectors while others pivot towards renewable energy and sustainable technologies, creating a complex and sometimes contradictory market landscape.

However, BCA Research's latest MacroQuant model advises a minor underweight in equities for December, offset by an overweight in bonds. The model suggests a defensive equity sector allocation that prioritizes consumer staples, healthcare, and utilities. Across equity regions, the model favours the United States while underweighting the eurozone and emerging markets.