US election market trends, global stock valuations and the rising yield differential

How US stocks react to presidential elections

What the chart shows

This two-panel chart shows the historical performance of the S&P 500 from Election Day through Inauguration Day and into the early days of each new US administration. The top panel shows market trends when a Republican candidate wins, with shaded red and pink areas above and below to indicate variability in performance. The lower panel mirrors this for Democratic victories. By charting these periods, we can observe any patterns or anomalies in market response based on the winning party.  

Behind the data

A central question during presidential elections is how the stock market would react to the outcome. For example, following Trump’s election in 2016, Bitcoin, equity futures and the US dollar experienced notable increases. This chart takes a broader view, focusing on market performance not only in the days immediately following the election, but also through the first 75 trading days of a new administration. Historically, when Republicans assume office, the S&P 500 has often shown an initial uptick until Inauguration Day, sometimes followed by a modest correction. Will history repeat itself this time around?

US mortgage rates heat up

What the chart shows

This heatmap illustrates the monthly average 30-year fixed mortgage rate in the US based on Freddie Mac’s weekly data series. Each cell represents the rate from the final week of each month, spanning from 2000 to 2024. The color gradient, from light blue to dark red, shows the Z-score of these rates, visually highlighting periods of exceptionally low or high mortgage rates. ‍

Behind the data

After the Great Financial Crisis, interest rates reached all-time lows, with US mortgage rates following suit. Between 2012 and 2021, the 30-year fixed mortgage rate remained near historic lows due to prolonged low-rate policies. However, post-pandemic economic recovery and the Federal Reserve's aggressive rate hikes subsequently pushed mortgage rates sharply higher. With ongoing inflation concerns, geopolitical tensions and burgeoning US debt, it is unlikely that mortgage rates will return to pre-pandemic lows. Instead, we may be entering a period where rates resemble levels seen in the early 2000s.  

UK-Germany bond yield gap hits 20-year high as economic risks diverge

What the chart shows

This chart compares the yield-to-maturity of 10-year government bond benchmarks for the UK and Germany from 2005 to present. The top panel shows the yield levels for each country, while the bottom panel illustrates the yield spread between the two, capturing the difference in yields over this period.

Behind the data

The recent UK budget release triggered a sharp market reaction, causing the pound to drop sharply and pushing UK gilt yields higher. Meanwhile, Germany faced its own headwinds, including sluggish growth and energy constraints.

Since early 2023, the spread between UK and German 10-year bond yields has widened significantly, reflecting diverging perceptions of economic and fiscal stability. Currently at a 20-year high, this spread suggests that investors see increased economic risk in the UK relative to Germany, pricing in expectations of higher inflation, fiscal strain and potential currency pressure specific to the UK’s outlook.

Global stock valuations show wide gaps as economic pressures mount

What the chart shows

This table displays MSCI ACWI Index valuations by country across multiple metrics: trailing price-to-earnings (P/E) ratio, 12-month forward P/E ratio, price-to-book (P/B) ratio, and dividend yield. Each metric is color-coded based on 15-year z-scores, with colors ranging from blue (indicating lower valuations) to red (indicating higher valuations.) Countries are sorted by their average z-scores, providing a comparative view of relative over- and undervaluation.

Behind the data

As of October 2024, stock markets in Taiwan, the US, India and Australia show notable overvaluation, driven primarily by P/B ratios above two standard deviations. While earnings growth has slowed, the prominence of AI may continue to support high US valuations without necessarily forming a bubble. Indian equities, on the other hand, face headwinds from weaker earnings and capital outflows. At the opposite end, Mexico, Colombia and Hungary appear undervalued, thanks to attractive dividend yields and lower P/E ratios. These valuation differences offer insights that can help guide equity allocation and country selection within global portfolios.

Dollar dominance faces new challenge

What the chart shows

This table visualizes the share of various currencies in global payments processed via the SWIFT system, displaying data from the past three months (September, August and July 2024). It also shows each currency’s highest and lowest recorded share over the past 10 years, the position of the latest observation within the interdecile range (10th-90th percentiles), and historical averages, including mean and median values.

Behind the data

In August, the US dollar’s share in global payments reached a record high, briefly raising expectations that it might soon exceed the 50% threshold. However, the currency’s share settled back to around 47%. Despite ongoing talk of the dollar’s potential decline, partly fueled by talks of a proposed BRICS (Brazil, Russia, India, China and South Africa) currency, the data reveal a different trend: the USD's recent dip has not been absorbed by the Chinese yuan, as some expected. Instead, other developed market currencies, such as the euro, British pound and Japanese yen, have seen slight increases, reflecting their ongoing role in global transactions.

Rising Middle East tensions threaten global trade and energy supplies

What the chart shows

This chart tracks trade volume and tanker transit activity through the Strait of Hormuz from May 2019 to September 2024. It highlights the sharp drop in trade flows following disruptive events including the recent conflicts and attacks in the Middle East.

Behind the data

The Strait of Hormuz is a critical chokepoint for global oil supply, facilitating nearly a quarter of the world’s daily oil exports. This narrow waterway, located between Iran and Oman’s Musandam Peninsula, is vital for connecting Middle Eastern oil producers with international markets. Amid escalating tensions and conflict in the region, the risk of disruption in the strait has increased, which could drive up global energy prices and shipping costs and delay supply. Any significant obstruction here would have far-reaching consequences for global oil and gas markets, underscoring the Strait of Hormuz’s strategic importance in the current geopolitical landscape.