Multi-Asset Weekly: US Equities Climb on the Back of Consumer Confidence High
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Chief Investment Office2 Dec 2024
  • Equities: US stocks gain on improving consumer sentiment while Europe uncertainties persist
  • Credit: Investors should stay in quality to mitigate reinvestment risks and potential growth slowdow
  • FX: OIS market betting on ECB to lower deposit facility rate to 3% at 12 Dec meeting
  • Rates: Unwinding of “Trump Trades” in rates space; 10Y UST yields dipped below 4.20%
  • The Week Ahead: Keep a lookout for US Change in Nonfarm Payrolls; Singapore Retail Sales
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Equities: Markets gain on investor optimism

US stocks record another week of gains as consumer confidence climbs to a 16-month high. The US Conference Board’s consumer confidence index improved a second month to 111.7 in November, its highest reading since Jul 2023, with a record 56.4% of respondents expecting US equities to rise over the year ahead. The S&P 500 and Dow Jones gained 1.1% and 1.4% respectively, while the NASDAQ added 1.1% to end the week. Europe markets continued to reflect concerns on US trade tariff uncertainty and the struggling German economy with the STOXX 600 and FTSE inching 0.4% and 0.3% higher respectively. Japan equities dipped slightly over the week as yen strengthening posed headwinds for export-reliant industries; the TOPIX fell 0.4% and the Nikkei 225 lost 0.2%. Meanwhile, China markets rose amid optimism that the government will provide further policy support. The Shanghai Composite jumped 1.8% while the Hang Seng gained 1.0% to end the week.

Topic in focus: Small-cap outperformance post-election. Following the recent US elections, small-cap stocks have outperformed the broader market (S&P 600 Small-cap, 7.6% vs S&P 500, 4.3%). As the equity market continues to broaden, we expect this trend to continue, driven by the following:

  1. Rate cuts and lower borrowing costs: Small-cap companies are more sensitive to interest rate changes due to their debt structures, often having a larger proportion of debt maturing within the next five years compared to larger companies (c.67% for S&P 600 Small-cap vs c.45% for S&P 500). As the Fed continues easing, these companies can refinance at lower rates, reducing borrowing costs and potentially boosting earnings.
  2. Pro-growth policies: Markets anticipate that the incoming administration's pro-growth agenda, including corporate tax cuts and deregulation, will disproportionately benefit smaller companies. Notably, small-cap companies generate a larger percentage of their revenues domestically compared to large-cap firms, making them more sensitive to US economic policies.
  3. Attractive valuations amid a broadening rally: The S&P 600 Small-cap Index's forward P/E ratio stands at 21.8x, a 15% discount to the S&P 500’s 25.5x. This significant valuation gap presents a compelling opportunity for investors seeking to capitalise on the expanding market rally.
Figure 1: The rise of small-caps

Source: Bloomberg, DBS



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