Global Equity Weekly

November 08, 2024 | 16:31

Red Screen at Night, Investors' Delight

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Equity markets rallied this week on the back of the U.S. election result and alongside a widely-expected 25 bp rate cut by the Federal Reserve. The S&P 500 rose a strong 4.7% and crossed the 6,000 mark for the first time on record. The TSX added a more modest 2.1%, but is also flirting with record territory.

The dust has started to settle on a week that saw a resounding Republican victory, and some of the ‘Trump trade’ has faded into the end of the week. Ten-year Treasury yields are one example, which are now sitting almost right at pre-election day levels around 4.3%—yields jumped to almost 4.5% on Wednesday before subsequently fading. We believe the U.S. economy could see a near-term boost from improved confidence, looming pro-growth policy measures and a lighter regulatory environment—indeed, we revised up our 2025 growth outlook modestly. That said, potential tariffs and a possible bump in inflation could, all else equal, lead to higher interest rates than we would otherwise see. Suffice it to say that the Treasury market is remaining calm on this front so far, but equities are seriously liking the outcome.

Source: Bloomberg

All sectors of the S&P 500 were stronger this week. Banks were winners on the prospect of firmer growth and less regulation; consumer discretionary rallied on firmer growth expectations and likely tax cuts; and energy rose sharply with an eye on a more favourable domestic environment. There were some weak spots, no doubt. Utilities lagged on a potentially higher interest rate path; big pharma was under pressure most of the week; and some specific industries (e.g., solar) were down as well.

Meantime, Canadian stocks were lifted by the tide of rising U.S. equities, but they underperformed on the week. And that might be indicative of what’s coming on the growth front. While a lot of ink has spilled over the concern about tariffs (a worthy concern no doubt), pro-growth policy changes would surely help if actions south of the border drive stronger U.S. activity. As a bonus, should a change in government in Canada take place at some point in 2025, any tit-for-tat pro-growth policy response would also support the outlook.

Major Index Performance

North American Sector Performances

(% change over period)

Table 1 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 2 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Relative Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Relative Sector Performance