Thank you, David Gardner and St James’s Place Asia and Middle East, for sharing your valuable market insights with our community in the SJP 15th October Weekwatch. This week, we’ve taken the time to put together the key points of the update; the focus is on the US Election 2024 after a short recap of the global financial markets quarter.

At a glance

• The last quarter saw significant market swings due to the Japanese yen carry trade, a larger-than-expected Fed rate cut, and a new China stimulus.

• Expect short-term market fluctuations due to emotional election reactions but focus on long-term policy changes that will impact global markets.

• Focus on the basics, not distractions. History shows missing the ten best market days can significantly lower your returns.

Recap on the last quarter

US markets rebounded in the last quarter after a steep drop in July and early August. Concerns about a recession and tech valuations triggered significant caution, but the downturn was short-lived. A larger-than-anticipated 0.5% rate cut by the Federal Reserve and new stimulus from China contributed to a strong recovery.

Value stocks did better than growth stocks in the overall stock market, with Real Estate, Utilities, and Industrials leading the way. Information Technology, Communication Services, and Energy had the poorest performance. This marked the first quarter since Q4 2022 when the S&P 500 outperformed the "Magnificent 7" tech stocks.

Credit markets improved as investor confidence rose due to monetary easing and signs of a soft landing. Both investment grade and high-yield markets performed well this quarter. With investors expecting quicker rate cuts, sovereign bonds also had a solid quarter.

In Asia, China experienced a significant stock market rally due to new stimulus measures after a period of difficulty and volatility. On the last quarter day, the CSI 300 index rose by 8.5%, marking its best daily performance in 16 years. In contrast, Japan's market was initially impacted by the new prime minister's strict monetary policy but recovered somewhat towards the end of the quarter, finishing with little change.

This means financial markets were more robust than usual in September than previous years.

The US Election 2024

The most awaited event this year is the 60th US presidential election. The media often highlights the candidates more than their policies, leading to emotional responses and short-term market fluctuations. Nevertheless, government spending and regulations significantly affect markets in the long run; therefore, the focus is on the medium- to long-term at St. James's Place.

As the campaigning ploughs ahead, three things are becoming increasingly clear:

1. This is likely to be a close election.

2. So far, Harris and Trump's potentially large borrowing requirement is not of significant concern to the financial markets. However, it could store potential future volatility for US government bonds.

3. The results could have far-reaching implications for industries sensitive to regulation.

No matter who is in charge, the leaders must address the large debt the US has built up over time. They will also face ongoing issues with global trade and geopolitical risks.

Turning the page: November to January

The 2024 election results will greatly impact events beyond November, especially before the January inauguration.

Investors will watch policy changes closely because the first 100 days are essential for the market and future economic growth, inflation control, and sector performance. Markets will respond quickly to the policies under a Harris or Trump presidency.

A Harris administration will likely focus on social inclusion, climate action, and economic fairness. This could benefit green energy while leading to more regulations for fossil fuel and tech companies.

A Trump presidency would probably emphasize reducing regulations, increasing tariffs on imports, cutting taxes, and supporting traditional energy industries. This could temporarily raise market confidence but also create worries about global stability and fiscal responsibility.

Before political events, investors should avoid predicting the outcomes and prepare their portfolios for unexpected risks.

The focus must be on managing risk by considering different scenarios and probabilities instead of predicting one specific result. However, the bond market might be especially vulnerable right now due to the current state of US public debt and deficits.

Increasing deficits and possible financial issues, worsened by either candidate's spending plans, will put the bond market in the spotlight—considering valuations to understand these short-term risks concerning the long-term outlook.

The next US government's choices will impact the world, including trade, defence, and foreign relations. Focus on the medium to long-term instead of short-term guesses.

History shows that staying invested is beneficial. The best days in a market often follow the worst days. For example, a $100,000 investment made 20 years ago would have nearly tripled if it had remained fully invested. But the final amount would be almost cut in half if you missed the ten best days. This highlights the long-term risks of trying to time the market.

Please be aware past performance is not indicative of future performance. The value of an investment may fall as well as rise. You may get back less than you invested.

Source: St. James’s Place Weekwatch

The Expatriate always tries to make sure all information is accurate. However, when reading our website, please always consider our Disclaimer policy. The information contained is general information only and does not consider your personal objectives, financial situation and needs. We strongly recommend that you do not act on any information provided in this document without individual advice from a trusted Financial Adviser. You should also obtain a copy of and consider the Product Disclosure Statement for all financial products before making any decision.