Markets continue to dance to the tune of 'Trump trade'

Medium-term outlook remains good for equities, but one needs to be ready should the music stop

- Ven Sreenivasan

Expectations of United States President-elect Donald Trump's pro-growth policies have fueled the "Trump trade" and sent equity markets into overdrive, the US Dollar Index rallying, and the US 10-year Treasury rising to new recent highs.

The question is how long this euphoria will last.

US Federal Reserve chairman Jerome Powell, after announcing another 25 basis points cut earlier in November, somewhat dampened investor hopes for another interest rate cut in 2024 by saying the US central bank need not rush to ease monetary policy.

Mr Powell said that with the economy still growing, the job market solid and inflation still above the 2 per cent target, the Fed can deliberate carefully on rate cuts. While traders were still betting on a 25 basis point reduction at the December Federal Open Market Committee meeting, the probability fell to 55.5 per cent last week, from 82.5 per cent earlier in the week, according to the CME FedWatch.

With the latest 25 basis points cut, the Fed funds rate (FFR) is now in the range of 4.5 per cent to 4.75 per cent. The consensus among analysts is that the FFR will be around 3.5 per cent by the second quarter of 2025.

On Wall Street, the combination of higher Treasury yields and lowered market expectations for a December rate cut saw the Dow Jones retreat from its recent highs, as it gave up 1.24 per cent for the week to close at 43,444.99 points on Nov 15.

The S&P 500 pulled back 2.08 per cent for the week to 5,870.62 points, while the Nasdaq fell 3.15 per cent to 18,680.12 points.

In Singapore, the Straits Times Index (STI) bucked the trend, ending 0.55 per cent higher at 3,744.7 points - its highest close in 2024 - bringing the benchmark index closer to the all-time high formed in October 2007.