Donald Trump’s victory helped push the S&P 500 to 5,995.54 on Friday. The Republicans are inching closer to control of the House, and securing a sweep, providing a further fillip to stocks. But the case for equities has been strong all year, with the Fed pivoting at the back end of 2023, cutting rates into a strong economy. Equities have outperformed bonds: a significant rate cut cycle was simply not merited by the data.
There were more bullish signals from the economy last week, with consumer spending staying strong though October. Consumers have seemingly delivered a bold start to the holiday season for retail. Restaurant spending was up solidly too. The UoM consumer sentiment expectations index also climbed at the start of this month, to the highest since July 2021. The spread between the expectations and current indices surged, as optimism rebounds.
Strong US demand pushed the nominal goods & services deficit sharply wider to $84.4bn in September, led by a larger core goods deficit. Indeed, in real terms, core goods imports (ex-petroleum) hit a record high in September, climbing 4.4% m/m and 9.7% y/y. The detail of the latest US trade report is noteworthy: it suggests the outlook for capex is bullish. Indeed, real capital goods imports have turned markedly higher, up 19.7% y/y to a record high. The jump in capital goods imports is due to the ramp-up in capex spending by Big Tech, reflecting a strategic focus on expanding AI infrastructure.
