What’s New

November brought with it the turning over of a proverbial card as the US election came and went. Now, we are left with a whole new set of questions to answer as we push toward a new year, a new administration, and a new policy regime.

Republicans have swept into power and will have what they believe to be a strong mandate to govern come 2025. Campaign rhetoric focused on policy priorities including immigration, tax policy, and tariffs. It’s also the case that persistent inflation played a key role in the election outcome – a factor that may well constrain the ability of Republican policymakers to pursue certain policy objectives with the full force of their mandate.

Given the focus on a number of potentially inflationary and growth-positive policies, it’s unsurprising that Treasury yields and the US dollar rallied aggressively post-election. Financials continued to lead the equity market higher, while small caps delivered strong returns as well. After a temporary pullback, yields pushed back to levels that have been associated with stresses in equity markets over the last several years before easing back to more benign levels. Stated more simply, or perhaps more broadly, we have been confident that we are in a volatile environment, and this was certainly the case in November.

This volatility is unlikely to recede, nor will it be contained to financial markets. In fact, we anticipate that a volatile political, economic, and geopolitical backdrop will set the stage for continued volatility in financial markets.

Political volatility is all but certain, and we’ve already seen this begin to manifest. Presidential Cabinet nominations have been mixed. With one nominee already withdrawing from the process amidst strong pushback, other candidates drawing concern about potential disruption, and others still drawing praise and bringing with them relief for financial markets. The creation of the Department of Government Efficiency has been another polarizing announcement but has a wide range of potential outcomes. Talk of tariffs has also stayed at the forefront, as the incoming President has already threatened some of our largest trading partners with tariffs as a means by which to achieve policy goals.

As with policy – and in some ways because of it – the range of economic outcomes also remains wide. With growth still resilient, an extension of tax cuts and deregulation could ignite animal spirits and contribute to a revival in manufacturing investment; this could be super-charged by the threat of tariffs encouraging reshoring. Another path forward could see policy uncertainty weigh on US equities, as elevated inflation forces the market to reprice that path for rates, ultimately weighing on household net worth and consumer spending.

Our Perspective

At the end of the day, there are several permutations we could envision playing out.

In such an uncertain environment, we continue to believe that investors should be prepared for volatility in markets. We believe that our active approach to investment management will continue to allow us to uncover investment opportunities, while largely avoiding parts of the market where we see elevated risks moving forward.

Our Economic and Market Views Post-Election

Read more on our views on the election outcome and the economic and market impacts of a Trump administration here.

Our View

Economic Cycle		The US economy has remained resilient despite the aggressive hiking cycle we saw from the Federal Reserve. However, we did see pain in industries including transport and manufacturing. The US consumer has remained strong. We believe that the lagged effect of monetary policy could start to be felt in other parts of the economy in the coming quarters, and we are keeping a close eye on the labor market.
Stock Market		The US stock market continues to trade near all-time highs. Sentiment now appears stretched and valuations are not compelling. To date, market returns have been driven by multiple expansion. EBIT margins climbed to historical highs in the years following COVID lockdowns; elevated input costs and weakening demand and pricing power are posing a risk to the ability of corporations to maintain earnings at their projected level. Returns will be harder to come by and stock selection will be increasingly important.
Bond Market		While growth has remained resilient and inflation remains above target, interest rates have come in off of their peak as the market has started pricing in rate cuts from the Fed. Corporate spreads remain well contained, particularly considering the risks we see to the economy.
Important Issues on the Radar		Inflation: After a surprising uptick to start the year, inflation has resumed its downward trajectory. However, we would caution that we are still well above target and upside risks remain.
		China’s Economy: China has pivoted on key economic issues that acted as severe headwinds to growth over the last two years; however, economic growth appears to be stagnating and it will be critical to monitor the magnitude and the effectiveness of the policy response in the coming months.

Indicates change Indicates no change

Source: Bloomberg.

All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

This newsletter may contain factual business information concerning Manning & Napier, Inc. and is not intended for the use of investors or potential investors in Manning & Napier, Inc. It is not an offer to sell securities and it is not soliciting an offer to buy any securities of Manning & Napier, Inc.