US market drives year-end rally, Europe offers potential for surprises
November was particularly strong in the USA: Donald Trump's clear election victory removed political uncertainties and caused the US markets to rise sharply. The global share index MSCI World recorded an increase of 7.54% in EUR, while Europe and Japan posted moderate gains. Financial and technology stocks dominated worldwide, while commodities and healthcare stocks were weaker.
Financial and technology stocks were also among the strongest sectors in Europe in November. At the same time, cyclical sectors such as chemicals and the automotive industry suffered losses, which amounted to more than 4% on a monthly basis.
A recession in the USA or a financial market crisis still seems unlikely. A scenario similar to that of the mid-1990s - moderate US interest rate cuts in the absence of a recession - still remains realistic. We therefore remain constructive for the remaining weeks of the year. Further interest rate cuts are to be expected in the USA, although market expectations are still relatively optimistic despite the recent adjustments. This high level of optimism harbors a certain potential for disappointment.
The slightly higher interest rate level in the USA continues to speak in favor of banks and the financial sector, which we continue to view positively. We also see opportunities in the construction and infrastructure sectors as well as in Japan.
Economic development in Europe remains fraught with risks due to the structural problems in Germany and the threat of new US tariffs. However, the enormous pessimism towards European equities could create room for positive surprises. In particular, companies with low cyclicality, low tariff burdens and cost-cutting potential could prove to be interesting investment targets with a view to 2025.
Opportunities that we see
The global and US financial/banking sector is structurally well positioned. Less regulation under the new US government is supportive. Higher interest rates in the US in the long term could also have a positive impact on interest income. We expect M&A activity to pick up in 2025 and the crypto market should also receive a tailwind under the Trump administration.
With a full pipeline of infrastructure projects, the construction sector remains promising, especially in the US. New orders for Ukraine construction could be added in the event of a possible ceasefire or peace agreement.
Japan continues to offer one of the highest market risk premiums and is seeing strong growth in share buybacks. The country remains unaffected by US tariffs and has not experienced overinvestment in recent months. Japanese financials could also benefit from higher US interest rates.
Market breadth in the US could improve in favor of small and mid caps. These companies will benefit in particular from possible tax cuts.
Selected European companies offer opportunities. In particular, companies with low cyclicality, low customs duties and cost-cutting potential could prove to be solid investments.
Risks that we are monitoring
The market's expectations of US interest rate cuts still appear too optimistic.
High valuations: US market valuations are high and many positive developments are already priced in. Optimism for US equities also remains exceptionally high. The currently very low spreads on corporate bonds could also serve as a warning signal.
Geopolitical tensions: A renewed trade war between the US and China remains a risk. If massive tariffs on Chinese imports are introduced under the Trump administration, China could react with a significant devaluation of the RMB. This would further cloud the outlook for Chinese equities.
The Trump administration's planned tariff measures could lead to negative implications, including a stronger inflationary impulse. This could in turn lead to higher interest rates at the long end and weigh on the markets.
A possible solution to the war in Ukraine and increased oil production in the US could weigh on oil and gas prices. At the same time, persistently weak demand from China could exert additional pressure.
We expect an increase in new issues in 2025. If these are not successful, this could be a warning signal for the markets.
Europe, and Germany in particular, continues to face structural growth problems. Nevertheless, stock market performance must often be viewed in isolation from the overall economic situation.
Monetary
The introduction of higher tariffs under the Trump administration could further strengthen the US dollar. Protectionist measures tend to increase demand for the domestic currency and could therefore support the US dollar.
While the Fed is likely to pursue a more moderate interest rate policy, the ECB could be forced to cut interest rates more sharply due to the ongoing structural growth problems in Europe. This divergence in monetary policy should also support the US dollar.
Market technicals
Optimism for US equities is high following the clear election result. For Europe, on the other hand, pessimism prevails. Seasonally, the tailwind could continue until Donald Trump's inauguration in January.
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