What do central bankers’ latest moves mean for investors?

It’s old news by now—Donald Trump was announced as President-elect last Wednesday morning. We covered how Republican administration policies could affect markets in our election recap piece, and Michael Cembalest, our Chairman of Market and Investment Strategy, discussed the election impacts and outlook here.

It was a catalyst-heavy week across U.S. elections and central bank meetings. Below, we get you up to speed on the market moves that were driven by these events.

Equities: U.S. large-cap equities rallied to all-time highs. The S&P 500’s +4.7% gain was its best weekly performance in a year – even temporarily rising above the 6,000 level.

Industrials had their biggest one-day gain in two years on Wednesday, as markets anticipated what a relatively more “America first” agenda means for U.S. production.

Small caps were one of the beneficiaries on the week (Russell 2000 +8.6%). Better growth and fewer regulations could aid the group.

Deregulation should remove hurdles for M&A and help thaw frozen activity. That’s a big boost for financials, and specifically banks. Large-cap banks gained more than +7%, while the regionals gained +10%. The market is not just anticipating M&A, but also loan growth and less stringent capital buffers.

Fixed income: A GOP sweep (which most investors now expect) drove interest rates higher.

Yields on the 2-year (4.25%) and 10-year (4.30%) both jumped Wednesday (8 and 16 basis points, respectively) following election results, but have since retraced most of those moves. Higher inflation and fiscal deficits may necessitate more compensation to invest in longer-maturity fixed income.

A focus on onshoring and securing U.S. supply chains, combined with tariff threats (tariffs would reduce U.S. demand for foreign imports, and thus foreign currency to pay for those imports, increasing the value of the dollar, all else equal) resulted in a bullish backdrop for the dollar relative to foreign currencies.

Commodities: Oil recaptured some gains after falling -9% in the month of September. OPEC+ delayed output hikes and the United States purchased oil to refill the Strategic Petroleum Reserve. In the medium term, we think prices will be challenged, given the likelihood of incentives for more production. We are likewise unexcited about energy equities.

Gold, which has reached several all-time highs throughout the year, took a step back. The move seemed to be driven by U.S. dollar outperformance, given the precious metal fared better when priced in foreign currencies.

Crypto: Bitcoin jumped to all-time highs, now above $80,000 a coin. Markets were excited about potential deregulation and the increased institutional adoption that could come, leading to the +15% weekly gain.

You might have missed it, but the Federal Reserve and Bank of England also met last week. The key takeaway: The easing cycle continues in both regions, but policymakers are aware of the risks. In our spotlight, we dig deeper into what the Fed’s latest move could mean for you.

On the Fed: We believe the Fed and corporate earnings, while overshadowed by the election in the media landscape, are more important for financial asset returns than politics. Chair Powell seems to agree: He stated “the election will have no effect” on policy decisions in the near term. Here’s what happened at the Fed’s latest meeting.

As widely anticipated, the Fed lowered its target interest rate range by 25 basis points to 4.5%–4.75%. The 25-basis-point decision was unanimous among voting members after September’s 50-basis-point cut.

According to Chair Powell, the risk to the Fed’s mandate (maximum employment and stable prices) are “roughly in balance.” And the recalibration of the policy rate should allow the economy to maintain the strength of the labor market and make more progress on inflation. Powell said the path of policy over time will be moving lower toward “neutral,” with the speed and ultimate level still to be determined.

Powell is “feeling good about economic activity,” and that even with the interest rate reduction, policy is restrictive. The labor market has cooled considerably from its overheated position. Inflation has moved down a great deal from two years ago and is on a sustainable path lower. The decision to move rates is just another step in securing the soft landing.

We see the Fed continuing to ease monetary policy toward the neutral rate. Futures markets believe the Fed will have cut the policy rate three times by the middle of next year, with a 65% chance of a fourth cut.

What does this mean for investors?

Cash in the United States and United Kingdom is already earning you less than it was a week ago, and will likely be even lower in the coming months. It may be prudent for investors to position portfolios at their strategic neutral duration position. Core bonds may still provide diversification and defensive characteristics in a long-term allocation.

Additionally, a soft landing (our base case) is an environment where equities have historically performed well. We think this can continue to be the case in this cycle. We prefer U.S. equities relative to the rest of the world, and see opportunities in industrials, utilities, tech and financials.

Lastly, for investors concerned about inflation, we see structural opportunities in infrastructure. Infrastructure that has inflation-hedging characteristics can support returns in a modestly higher inflation environment. Combined with the greater need to supply power for the AI buildout (an estimated 2% additional power annually for the next decade), this creates opportunities across power generation and power distribution, as well as digital infrastructure.

For any questions about how you can position your portfolio to achieve your goals, reach out to your J.P. Morgan team.