Markets closed October with a slight decline, as concerns grew that interest rates may not decrease as quickly as expected. However, it’s important to keep this in perspective: the tech-heavy Nasdaq has surged by 42% over the past year, while the broader S&P 500 has climbed 34%, marking the best 12-month performance since 1953!

Our US Equity fund has delivered a massive 41.9% return over the 12 months ended 31 October! While our crypto fund has delivered an even more impressive 92% return.   

With the US Presidential Election taking place on November 5, much of the conversation has centered around the election and the implications of each candidate's policies. However, there are also a few other noteworthy topics worth discussing.

So what’s been happening? 

Concerns are mounting that inflation is not so under control in the US 

Following the 0.5% cut to US interest rates in September, markets had convinced themselves that we were swiftly returning to ultra-low rates. At that time, many expected another 0.5% cut in November. However, a series of stronger-than-anticipated growth and job reports from the US have rapidly shifted that outlook.

Markets are now weighing the possibility of either a 0.25% reduction in interest rates or no change at all. In response to this shift in perspective, long-term interest rates have risen, with 5- and 10-year rates increasing by over 0.5% throughout the month.

Investors have come to realise that the period leading up to the global financial crisis, from 1990 to 2007, maybe more representative of the norm than the era from 2009 to the onset of COVID-19. This realization has sparked nervousness in the markets, as a key driver of equity market strength has been the falling interest rates.

Markets are increasingly betting on a Trump victory 

Whilst most polls put the US election as a dead heat, betting markets seem to be predicting Donald Trump as the winner of the election. This is seen as favorable by markets who expect a Donald Trump victory to be positive for US Equity markets and crypto. A combination of deregulation and lower taxes should boost company earnings which in turn will lift their valuations.   

While elections often generate more hype than actual market impact, a Harris victory could lead to a slight pullback. There will certainly be excitement and panic, but we believe it's best to ignore the noise. Remember, your KiwiSaver is a long-term investment intended for another 40 years, while presidents come and go every four years.

New Zealand interest rate cuts are looking larger than anticipated 

When the RBNZ cut interest rates back in September most people expected it to be followed with a further 0.25% cut in November. After continued weak economic data, people are now expecting a 0.5% cut and some are even talking about a 0.75% cut. The economy continues to go from bad to worse, liquidations are at all-time highs, bank delinquencies are rising and unemployment continues to tick up. 

With the sad state of the Government books and the current Government pursuing austerity policies it is hard to see a way out of this current malaise any time soon! 

Crypto returns to its all-time highs 

Crypto has been briefly flirting back with all-time highs and went as high as $72,000 at one point. The reasoning for the rally is threefold: 

• Blackrock is increasingly talking about Bitcoin as a traditional asset and continues to release research asserting that it should be a part of normal portfolios; 
• With the higher inflation/interest rate outlook in the US, investors are looking for alternative assets.  Gold has reached all-time highs and Bitcoin is increasingly being seen as the digital gold; and 
• Investors are hoping for a Trump victory.  He has been very positive about crypto and has vowed to support the industry.  He has also invested personally with the recent launch of a crypto token so is likely to follow through with the support  

What's next?

November is a massive month for markets with the US election and central banks around the world making decisions.  We will hopefully learn on Wednesday 6^th December NZ time who the next President is, though for most Kiwi the RBNZ interest rate announcement is on 27 November.