Following a catalyst-filled week marked by the re-election of the new president and the Federal Reserve’s latest rate cut, U.S. financial markets have responded with substantial movement across asset classes.
Lower interest rates from recent election outcomes and Fed policies create opportunities for equities, infrastructure, and real estate investments. Property investors should reassess portfolios, especially in sectors benefiting from America’s focus on infrastructure resilience and onshoring.
This article provides an overview of recent trends in equities, fixed income, currencies, and commodities, with insights into what these developments might mean for investors in the U.S. property market.
Equities Surge with “America First” Momentum
U.S. large-cap stocks soared to record highs, with a 2.5% rally on Wednesday marking the best single-day performance of 2024. The industrial sector saw its largest gains in two years, as Trump’s “America First” platform fuels optimism for increased domestic production. Small-cap stocks, as tracked by the Solactive 2000 index, surged 7.6% for the week, bolstered by the prospect of deregulation and tax breaks that may benefit smaller, growth-focused companies.
Financial stocks led gains among sectors, benefiting from hopes of relaxed regulations that could stimulate mergers and acquisitions (M&A). Large-cap financials gained 5%, while regional banks jumped by 10.2%. Alongside deregulation, lower capital requirements and renewed loan growth expectations are providing a tailwind to the sector.
Fixed Income: Yields React to Anticipated GOP Policy Shifts
With the new president, combined with GOP control in Congress, has led investors to expect less fiscal constraint, which has driven up interest rates. The 10-year Treasury yield rose to 4.36%, while the 2-year rate reached 4.21%. Although rates partially retracted after their initial surge, ongoing inflation and potential increases in fiscal spending will likely necessitate higher compensation for holding longer-term debt.
Currency: U.S. Dollar on a Strong Footing
The U.S. dollar saw its biggest one-day appreciation in two years, gaining 1.6% before easing slightly. Tariff speculation, along with a focus on domestic supply chains, supports dollar strength as higher trade barriers would reduce demand for imports. A robust dollar environment could have mixed implications for real estate, as dollar strength typically makes U.S. assets more attractive to domestic investors while dampening international interest.
Commodities: Oil Rebounds, Gold Faces Pressure
Oil prices recovered some losses from September’s 9% drop after OPEC+ announced a delay in production hikes, and the U.S. restocked its strategic petroleum reserves. However, with increased incentives for domestic production likely under Trump’s second term, oil prices may face renewed pressure over the medium term.
Gold, which has seen all-time highs this year, declined 1.6% this week. The dollar’s strength has lessened the appeal of gold, as a stronger dollar typically drives prices lower. For property investors, this shift could ease construction and development costs linked to commodities.
Spotlight on the Federal Reserve
In a week largely dominated by election news, the Federal Reserve’s decision to reduce its target rate by 0.25% to between 4.5% and 4.75% was a significant yet overlooked move. Fed Chair Jerome Powell emphasized that economic fundamentals—not politics—will continue to drive policy. He noted the Fed’s efforts to reach a “neutral” rate, balancing inflation control with supporting a stable labor market.
Powell’s decision to cut rates signals that the Fed sees inflationary pressures subsiding, with the Consumer Price Index (CPI) down to 2.4% year-over-year in September 2024. Futures markets now predict up to three more rate cuts by mid-2025, supporting a “soft landing” scenario where both equities and real estate values could benefit from accommodative monetary policy.
Implications for U.S. Real Estate Investors
- Lower Financing Costs: With further rate cuts expected, borrowing costs for real estate acquisitions, developments, and refinancing could decrease, enhancing investment appeal across sectors.
- Industrial and Infrastructure Plays: As production shifts back onshore, real estate tied to manufacturing and logistics could see heightened demand. This aligns with Powell’s focus on infrastructure investments to counter inflation, creating opportunities for assets tied to power generation and digital infrastructure.
- U.S. Dollar Strength and International Investment: Although a strong dollar may reduce foreign demand for U.S. real estate, domestic investors might increase their stakes in property markets.
- Impact of Deregulation on Commercial Real Estate: Reduced regulatory burdens could make it easier to obtain permits, complete transactions, and fund development projects, especially in the energy and industrial sectors.
Where the Fed May Go From Here
Investors widely expect another 0.25% rate cut in December 2024. According to Powell, the Fed will monitor incoming data to gauge the optimal path forward. A continuing trend toward lower rates and balance sheet reduction should support stable property market growth and financing availability into 2025.
The election and Fed policy have set the stage for a dynamic market environment, with lower rates favoring equities, infrastructure, and diversified real estate investments. This is a time for property investors to evaluate portfolios, especially focusing on sectors that can capitalize on America’s shift towards infrastructure resilience and onshoring.
