Despite a relatively calm week across the Atlantic, cut short by Thanksgiving and Black Friday, the American stock indices continued their impressive march forward. The S&P 500 and the Dow Jones thus signed new historical highs at the end of November. The American flagship index even recorded its best month of the year with an increase of +5.7% (+26.5% since the beginning of the year) against -0.5% for the Euro Stoxx 50 (+6.3% YTD). France, entangled in its political (and financial) crisis, is completely unhooked with a CAC 40 at -1.6% in November (-4.1% YTD).
While we have already highlighted this large gap in our last meeting on Monday, thanks to divergent activity indicators and the pro-business (and pro-American) program wanted by Donald Trump, partly justifying this difference in performance, the American financial markets nevertheless seem to completely ignore the potential inflationary risks linked to the measures announced by the future President. Investors have, in fact, remained totally stoic to Donald Trump's new tariff proposals (25% for Mexico and Canada and an additional 10% for China), which he justifies as a response to immigration and drug trafficking from these countries. As in Aesop's fable "The Boy Who Cried Wolf", the markets no longer rush to each of Donald Trump's threats, seeing it more as a negotiation technique than as real political will. This is also the Fed's view, with Jerome Powell recently stating that it was still too early to take into account uncertain political decisions in the American institution's monetary policy. While Donald Trump's first term has indeed taught us to put his statements into perspective, the fact remains that this creates uncertainty and that the inflationary risk of his program cannot be ignored. Without being totally alarmist, it nevertheless seems important to us to keep this point in mind, especially since, at the same time, the fall in prices in the United States is marking time. Although fully in line with expectations when the October figures were published, core PCE inflation has nevertheless been plateauing for 6 months now (see chart of the week) and seems to be struggling to converge towards the Fed's target. While US rates have even started to fall since their peak in mid-November, we have slightly reduced our equity positions in the zone, thus taking part of our profits after record performances in order to rebuild cash reserves (which, let us remember, are still fairly well-remunerated).
Finally, if France still seems to have the leniency of the rating agencies, the political blockage, which seemed inevitable, has just taken a new turn with the triggering, today, of 49.3 on the Social Security financing bill and the probable censure of the government. In the absence of political visibility, we will probably learn more about our Constitution in the days to come.
