US economic growth has been unexpectedly robust despite aggressive rate tightening from the Fed around 18 months ago – as we wait to see the election outcome, the ‘Trump Trade’ effect has triggered a rise in investors buying Big Tech and also gold as a hedge against geopolitical events.
There is a reflationary trend, hallmarked by slightly higher nominal GDP and inflation. The underlying aim of central banks is to reduce the budget deficit by boosting GDP growth rather than cutting government spending. This reflationary environment tends to support equities, driving slightly higher earnings and favouring cyclical companies in the market. As a result, there are potential opportunities among discretionary companies.
With a less robust growth trajectory over the 2027/8 period, markets could be expecting higher levels of inflation – putting gilt markets under pressure in the days since the UK Budget, and causing investors to prefer shorter-dated gilts.
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