Trump spooks markets with more tariffs

General market commentary

On Monday, markets continued their upward momentum, buoyed by optimism surrounding President-elect Trump’s nomination of Treasury Secretary Scott Bessent. Known as a deficit hawk, Bessent’s potential influence on economic growth through lower taxes seemed to fuel gains in domestic-focused shares, such as small caps, homebuilders, and retailers. This also led to a decline in Treasury yields, with the 10-year yield falling to near one-month lows, while the weaker U.S. dollar provided a lift to multinational companies. Though concerns over foreign exposure held back major names like Tesla and Nvidia, broader market strength was evident in the S&P 500 Equal Weight Index, which posted a stronger 0.9% rise.

The small-cap Russell 2000 surged to new all-time highs, while the Dow Jones Industrial Average closed at a record for the second consecutive day. The S&P 500 saw modest gains but continued its winning streak, with its sixth straight advance. The Nasdaq Composite also edged higher, reflecting a positive day for most sectors. Treasury yields dropped by 15 basis points, and the Cboe Volatility Index fell to its lowest level since mid-November, suggesting a calmer market environment amid increasing investor optimism.

Latest market update

• U.S. equity futures edged lower on Tuesday after President-elect Trump announced a 25% tariff on imports from Mexico and Canada, which would remain in place until both countries take action to address drug trafficking, illegal migration, and unfair trade practices.

• Asian shares mostly declined, pressured by Trump's tariff threats on China, Mexico, and Canada, heightening fears of a trade war. However, Chinese equities rose, with the Shanghai Composite and CSI 300 gaining as investors anticipated fiscal stimulus from Beijing to mitigate the impact of the tariffs.

• The Euro Stoxx 50 gained 0.3% to close at 4,803, supported by a global rebound in risk assets as investors responded positively to US political developments. Luxury shares led the rally, with Kering soaring over 5%, while UniCredit fell nearly 5% following its €10.1 billion bid for Banco BPM, Italy’s third largest banking group.

• The US dollar strengthened on Tuesday, climbing back above 107 as President-elect Trump reiterated his tariff threats, boosting demand for the greenback. The euro was trading at 1.0488 against the dollar, reflecting the dollar's broad gains across major currencies.

• U.S. Treasuries rallied on Monday, with yields falling across the curve following the appointment of Scott Bessent as Treasury Secretary, seen as a stabilising force for fiscal policy. Investors reacted positively to his moderate stance on tariffs and focus on managing deficits, though market participants cautioned against overemphasising his influence on trade policy.

• Oil prices fell in early Asian trade on Tuesday, extending losses from the previous session, as reports of a potential Israel-Lebanon ceasefire reduced geopolitical risk premiums. Additionally, a surge in the dollar, driven by President-elect Trump's tariff threats, weighed on crude prices, making oil more expensive for international buyers.

Equities on the move

• The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

• Macy's shares fell 2.2% after the company announced a delay in its earnings report, originally set for today. An internal investigation revealed that an employee had concealed over $100 million in expenses, with the company now expected to release its results by 11th December.

• Qualcomm's interest in acquiring Intel has reportedly cooled due to the complexities of the deal, with the company now considering the possibility of acquiring parts of Intel instead. This follows earlier discussions about a full acquisition, which would face significant antitrust scrutiny and comes amid Intel's recent struggles in the chipmaking industry.

• KB Home and Toll Brothers each rose by more than 6% as homebuilding firms benefited from yesterday's falling yields, with the 30-year mortgage rate also dropping below 7%, though still above the autumn lows. In our portfolios we also benefitted from our exposure to the iShares US Home Construction ETF, which soared by 5.1%.

• UniCredit has launched a €10.1 billion voluntary exchange offer for Banco BPM, offering 0.175 new UniCredit shares for each Banco BPM share, with the deal set to strengthen its position as Italy's second-largest bank. The merger, expected to generate €1.2 billion in annual benefits, aims for full integration by mid-2026 and will also support UniCredit's broader strategy, including its ongoing investment discussions with Commerzbank.

• ITV's shares rose by over 9% on Monday amid speculation of a potential takeover, with private equity firms CVC Capital Partners and Mediawan, along with French broadcaster Groupe TF1, reportedly exploring the possibility. Although discussions are still early, the broadcaster's underperforming broadcasting operations and strong growth in its Studios division have sparked interest in a possible sale or restructuring.

• Tesla's recent 40% share surge has been driven more by investor sentiment than fundamental changes, according to UBS analysts, with the rally adding over $350 billion to its market cap. While they raised their price target to $226, UBS warned that the equity’s current valuation seems overstretched, especially with risks from competition and regulatory shifts.

• Palantir received bullish price targets of $75 from both Wedbush and Bank of America, with analysts highlighting the company's transformative potential in AI and its expanding market opportunities. Both firms raised their growth projections for Palantir, emphasising its pivotal role in the AI revolution and positioning the company for strong growth in the coming years.

• Meta Platforms was added to Raymond James’ ‘Analyst Current Favourites’ list, with analysts highlighting its strong potential in AI and generative AI monetisation by 2025. They see opportunities for growth from Meta AI and Reality Labs, though note concerns about rising capital expenditures and infrastructure costs.

• Arm Holdings has received a "buy" rating from UBS, with a price target of $160, driven by its growth potential in AI, data centres, and personal computing. Despite a high valuation, UBS anticipates strong gains in royalties and market share, particularly in the smartphone, PC, and server markets, supported by strategic collaborations and ongoing R&D investments.

• MicroStrategy's share price targets are being raised by analysts, with Canaccord Genuity setting a new target of $510 and Bernstein raising theirs to $600, driven by growing confidence in its Bitcoin-centric strategy. The company's valuation is increasingly linked to its Bitcoin holdings, with some analysts predicting it could own up to 4% of the global Bitcoin supply within the next decade.

Upcoming data and events

US data for today includes October consumer confidence, which is expected to rise to 113.0, and October new home sales, projected to fall to 718,000. Additionally, the FOMC minutes from the November meeting will shed light on any discussions about fiscal policy, ahead of Wednesday's release of the PCE price index, personal income, and third-quarter GDP data.

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