La Française: US equities outperforming European equities

8 november 2024

Several experts from La Française comment on financial market's reaction to Trumps' election:

François Rimeu, Senior Market Strategist, La Française Asset Management:
"In the short term, the market reaction is in line with our expectations on Republican success in both the presidential election and Congress. We think that the current momentum is likely to continue over the coming weeks, with US equities outperforming European equities. In US equities, the low valuations of small and medium sized companies should allow them to continue their rally, as well as banks.

In bond markets, this is slightly the opposite situation with sharp rises in US yields while European yields are barely moving. Again, this trend should continue in the short term (despite the rate is already close to 4%). US bond market is arguably the most important market today; as long as the rate hike remains orderly, current trends should continue if the explosion of US deficits will not provoke a reaction like that following the budget of Lizz Truss in the United Kingdom in 2022, with a loss of control of the long end of the curves.

We do not see any significant impact of the US elections on credit spreads.

Concerning commodities, fossil fuels are likely to remain calm and very large deficits outlook should be favourable for the price of gold according to us."
 

Caroline Lamy, Head of Equities, Crédit Mutuel Asset Management (part of La Française):
"The markets' reaction to the US election has been in favour of the US and at the expense of Europe, with a marked sector bias. The inflationary aspect of the measures mentioned during the election period, the taxation of imports, the focus on reducing immigration and the expected impact on interest rates lead to an underperformance of leveraged stocks and particularly exposed to the Inflation Reduction Act.

Europe underperforms, especially utilities, banks and the automotive sector.

This high degree of volatility occurred during a period in which earnings were published and the, necessary, consensus review, which will allow a better position at the end of the year and the beginning of 2025 on stocks that have suffered from their sector affiliation.

Trump's impact on the geopolitical backdrop will likely lead to arbitrage in sectors such as defence. His trade war with China may continue to put pressure on imports, but China will likely to react. The market will wait for these announcements.

We also favour defensive sectors such as healthcare, until we have more details on what will happen in 2025. While we are not alarmist, we are taking a cautious stance and will benefit from excessive drawdowns."
 

Julien Maio, Co-Head of Fixed Income, and Paul Gurzal, Co-Head of Fixed Income and Head of Quantitative Hub, both from Crédit Mutuel Asset Management (part of La Française):
"After the pressure on long term yields, steepening of yield curves and rising inflation expectations that has been gradually taking place for several weeks - as the markets became more aware of the likelihood of a Donald Trump victory - we started to gradually increase duration in our bond exposures. We would expect to continue to add duration if rates sell off continues. However, we think that most of this tension has now taken place.

We remain cautious on emerging market debt, whose risk premiums could fall if the dollar strengthens, long rates rise and curves steepen further. Conversely, the strength of the dollar and the best bond momentum could counterbalance weak growth."