When Uncertainty & Opportunity Meet
After an impressive month of financial returns, November may have offered investors new investment insights. Many market and economic events unfolded over the recent past creating uncertainty and potential opportunity. The US election ended undisputed; candidate selection began for important executive branch jobs; threats of trade tariffs elevated; external conflicts consumed global politics; and US financial markets took another favorable step forward.
US financial market returns did especially well over the last month, overshadowing performance from many non-US markets. Index earnings reported in major US equity indexes continued to exceed expectations, with many more companies listed in the indexes beating estimates compared to missing. Increased earnings generally grow dividends and support corporate actions like stock buyback programs or mergers, which can be accretive to investor per-share earnings and bullish for market prices.
Long-term interest rates also declined in November, which lifted bond valuations since bond quoted yields and prices are inversely related. Investors approved of the language and rhetoric used to describe DOGE, the Department of Government Efficiency, which promises to slash trillions from the federal government’s annual budget. A tightened fiscal budget seems to be what investors desire. In addition, the federal government can win when it signals plans of fiscal responsibility because it can instill confidence in investors to lower yields, which can lessen the future costs of federally issued debt.
Digital assets took the spotlight again in financial capital markets last month. Crypto returns generated last month were extremely volatile. It just so happened the speculation swung in favor of its investors, the kind of positive volatility event investors like. The President-elect’s pick for US Treasury Secretary, Scott Bessent, and the planned resignation of SEC Chairman Gary Gensler may have excited the crypto bulls. Bessent might favor blockchain technology as a way to modernize finance. Investors may have seen Chairman Gensler as an obstacle to making crypto more publicly available. Any uninvested investors are probably wise to remain highly skeptical of the digital asset markets. Its registered volatility makes it highly probable that it could whipsaw to the downside in spectacular form, just like it did to the upside.
Foreign market returns, expressed in US dollar terms, have seemed to stall out as of late. A lot has happened recently that could adversely impact global growth, consumption, and prices tied to political uncertainties and conflicts associated with Europe, NATO expansion, the Middle East, and the spillover effects these risks have on neighboring countries. As a result, investors could begin to avoid foreign investments if certain regions around the world look less stable than before. However, foreign-diversified security returns have been fairly strong this year, especially when priced in local currency terms. This year’s rise in the US dollar’s global purchasing power has masked a portion of the positive performance experienced in foreign markets because investors with unhedged currency risks have lost to the US dollar’s strength.
Upon an already strong year, the US dollar strengthened after the US election. Whether related to perceived safety, threats of US trade tariffs, or investors believing the US economy will grow, the US dollar’s strength benefits many types of stakeholders, like American consumers and investors with US investments. However, global currencies rarely hold positions of power forever since competitive currencies often revert and adjust to normalized levels along with global macroeconomics. Paradoxically, some investors could view this as an opportunity to diversify away from US dollar risks, especially while the US dollar is so strong.
Many investors will consider how these market and economic developments should impact their portfolio allocations and financial planning goals. As this year begins to wind down, it is also important to consider applicable tax planning and financial planning strategies that should be implemented within the calendar year. Although the political environment, monetary policy approach, and geopolitical landscape is changing, investors will want to focus of discipline, diversification, and sound planning to guide the investment-decision making process.
