- Equities: Global equity markets in green thanks to easing inflation in the US; core inflation in June (+3.3% y/y) fell to lowest since Apr 2021
- Credit: A barbell duration strategy in IG credit (1-3Y and 7-10Y) will be well-poised for gains when rate cuts ensue
- FX: Polls are skewed towards Trump at the US Presidential elections; but a replay of USD’s rally into Trump’s victory in the 2016 elections is unlikely
- Rates: Market leaning deeper into Fed easing bets after recent CPI prints with 2.5 cuts factored for this year
- The Week Ahead: Keep a lookout for US Change in Initial Jobless Claims; Singapore Non-oil Domestic Exports
Related Insights
Global equities buoyed by fresh US inflation data. Equity markets across the board had a positive week ending 12 Jul thanks to US inflation data, which came in lower than expected for the month of June. The headline figure declined 0.1% m/m; this was the first time since May 2020 that the monthly rate was negative. On a y/y basis, prices were up 3.0%. Excluding food and energy, core inflation was up 3.3% y/y, the smallest it has been since Apr 2021.
This has set up growing expectations of a Fed rate cut in September and put markets in risk on mode during the past week. The Dow advanced 1.6% during the week to a new record high, while the S&P 500 and NASDAQ gained 0.9% and 0.2% respectively. Europe, Japan, and AxJ equities also rose during the week; Stoxx 600 +1.4%, Nikkei-225 +0.7%, HSCEI +2.4%, Hang Seng +2.8%.
Topic in focus: US equities – S&P 500 performance across party lines. The relationship between political leadership and stock market performance has long been a subject of interest for investors. Since the S&P 500’s inception in 1957, the index has delivered an average annual return of c.8.5%. Closer examination reveals that the S&P 500 achieves a higher return under a Democratic presidency with an average of c.11.4% annual return vs c.6.0% annual return from a Republican presidency.
Breaking it down into individual sectors (excluding Real Estate), since 1989, the best performing sector under a democratic presidency was technology (c.24.7%), followed by healthcare (c.16.2%) and financials (c.15.3%). Under a republican presidency, the best performing sector was consumer discretionary (c.7.1%), followed by technology (c.6.5%) and consumer staples (c.6.2%). Notably, the tech sector demonstrates strong performance regardless of the party in power.
We believe that this election will see the same trend for the tech sector, especially for Big Tech. Their dominant market positions and robust cash flow generation abilities position them favourably. Moreover, the Tech sector is poised to be a key beneficiary as the world embarks on the transformative journey of Artificial Intelligence (AI), solidifying the sector's importance in the economy.
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