The Week in the Markets
Historical week in which markets have welcomed the presidential change in the United States and the new political agenda of the Republican administration with open arms.
The S&P 500 crossed the 6,000-point barrier for the first time in history, with the Mag7 stocks rising almost 12%, and Tesla up 30%—it’s expected that Musk will join the new administration, which always helps the company avoid significant issues with new laws over the next four years. On the other hand, it’s worth highlighting the tremendous week for Small Caps, which rose almost 10%, as well as Bitcoin, which hit all-time highs. In other words, the so-called “Trump Trade,” often mentioned, has reached its peak.
We also noted during the week that beyond the stock market euphoria, a sector rotation is evident, driven by market expectations that U.S. interest rates will stay higher for longer—beyond this week’s 25-basis-point cut, only 3 or 4 more are expected until the end of 2025. This shift negatively impacts sectors like utilities and real estate, while benefiting the financial sector. Additionally, the influence of Mag7 movements on each sector, such as Tesla on Consumer Discretionary, is apparent.
The big drama of the week has been in Europe, as the anticipated new tariff policy significantly harms countries with a positive trade balance with the United States, like Europe, specifically Germany. This means greater export challenges for the already struggling European economy, which is bad for businesses. The market also assumes that lower rates will be necessary, further widening the policy divergence between the Fed and the ECB, which is unfavorable for the euro (this has hit markets with a higher financial sector weighting, like Spain and Italy, particularly hard). Similarly, the British pound has become a “safe haven,” as the UK’s economy is more service-oriented.
Sharp declines in the VIX post-election—great timing in selling VIX calls last week—reflect greater certainty about the coming months, as well as declines in gold and silver, with investors rotating into other assets with higher immediate returns.
We believe this is one of those pivotal weeks that defines the investment strategy of any Portfolio Manager in the short and medium term, which is why we have made an effort to publish a detailed analysis of the various sectoral and asset impacts that we foresee due to Trump’s election as the new U.S. president.
Highlights of the week
US Elections
A resounding victory for Trump, who conquered both the White House and the Senate. This pushed most of the main indices to all-time highs. Beyond that, we think that this Trump victory was especially important for short- and medium-term portfolio positioning, as we have been seeing a marked asset rotation since Wednesday.
So far, the main winners are the U.S. indices, Bitcoin, the dollar, and sectors that benefit from interest rates remaining high for a longer period (such as Financials). On the other hand, countries with a larger trade balance with the United States are negatively affected by the threat of tariffs, and since Germany is among them (along with others like China or Mexico), the euro has weakened further against the dollar. Everything indicates that the FED and the ECB will proceed at different speeds from now on.
We have written a specific article analyzing the impact on other segments, and it is available on our website.
Interest Rates
The Federal Reserve unanimously decided to lower interest rates by 25 basis points, placing them within the 4.50%-4.75% range. The market did not react, as it was anticipated by more than 99%. However, if we must highlight something, it is that the FED issued a statement almost identical to the last one, but removed the line “the Committee has greater confidence that inflation is moving sustainably towards 2 percent,” implying a slightly hawkish tone due to the removal of the phrase “greater confidence.”
Europe
Germany faces further turmoil as Chancellor Olaf Scholz’s government collapses after he dismissed Finance Minister Christian Lindner over policy disagreements. Scholz has called for a vote of confidence, while opposition and business leaders push for a snap election to restore stability.
UK
The Bank of England reduced the key Bank Rate for the second time this year, by a quarter-point to 4.75%, as inflation continues to slow down.
The Week in the Markets – Some interesting Data about markets this week & YTD
Huge week for Tesla, Elon Musk’s company, which practically became a binary bet in the elections. With Trump, Musk will likely be involved in the government and will very likely benefit (or at least not be penalized) by potential new regulations in his sector, which is heavily exposed to government decisions. Up 30%.
Earning Season
Very good week in general, practically for all the companies we follow (and very bad for two of the companies we had identified as such, one of them, STKS). Although without a doubt, the protagonist of the week has been GOGO, which appreciated almost 40% (equity, calls +180%) and for which we published the investment thesis with imminent catalysts 10 days ago.
Both for GOGO and the rest of the companies that have reported, we are publishing the analyses both in the Portfolio Management section and individually on the website.
Next week, Golar LNG, Italmobiliare, Arcos Dorados, OneWater Marine, Cava, and Tamburi Investment Partners from our universe will report. We will cover all of them (earnings analysis, financial model update, and our opinion on them