Fog, Trump and interest rates

For the month as a whole, the US S&P 500 rose 0.3 percent measured in USD, the European Stoxx 600 ended up 1.0 percent measured in EUR, and the Nordic VINX rose 1.2 percent measured in NOK. Here at home, the Oslo Stock Exchange fell by 0.13 percent (OSEBX).

The fog lifts in the US economy

The record-long shutdown of parts of the federal government characterized November in the US. Uncertainty around wages and public services likely dampened growth and private consumption. Many economists believe the effect will be temporary. When everyday life normalizes, pent-up demand may provide a boost into the next half-year. The tax cuts from Trump’s tax reform are also expected to give a stronger impulse towards the midterm elections. In November, the White House removed tariffs on a number of food items to strengthen households’ purchasing power. The lack of fresh macro data has made the picture unclear, and new employment figures in December will therefore be important for further assessment of the economy.

The Fed between rate cuts and political pressure

The US central bank (the Fed) has recently had to make decisions based on weak data. Yesterday the Fed cut the policy rate by 0.25 percentage points to a range of 3.50–3.75 percent, the third cut in a row. Expectations of a lower policy rate next year have remained relatively stable. At the same time, the focus has shifted towards the Fed’s independence. The President has several times expressed dissatisfaction with the level of interest rates. Advisor Kevin Hassett is now often mentioned as a possible successor to Jerome Powell, which increases uncertainty around future monetary policy.

The AI wave and earnings season

Earnings season and AI investments were central themes in the equity market in November. The large US technology companies received a lot of attention. NVIDIA delivered strong results and continues to function as a kind of gauge of the AI boom. Share price performance has nevertheless been more cautious recently, despite solid figures. Competitors such as Google are at the same time continuing to build on their own TPU solutions, and several major players are considering these as alternatives. This gives a more open picture of who will take the largest share of value creation within AI going forward. Outside the US, developments were more mixed, with weaker performance in several emerging markets and more stable performance in Nordic equities and credit.

The road ahead

The shutdown is over, and the Fed has once again cut interest rates. Geopolitics and uneven key figures continue to create uncertainty, but lower interest rates, tax cuts and easing of trade barriers point towards a better growth picture going forward. Despite this, we expect strong investment appetite within artificial intelligence and digitalization to continue to lift productivity and earnings. In addition, several emerging economies are showing clearly better growth prospects than a few years ago. Taken together, the combination of fewer financial headwinds and new structural drivers provides a positive backdrop for the equity market. For investors with a long-term horizon, equities thus still appear as an attractive alternative for the placement of capital.