While US equities have done relatively well so far this year, they lagged their peers in October on ongoing concerns about the likelihood of the Fed soon hiking its rates and on the related strong USD. The greenback reached a 7-month high, registering its largest monthly gain against major peers since May, on the view that the Fed would hike its rate in December.

The earnings season has started and results so far look like meeting analysts’ expectations. However, the low earnings-growth rate for the quarter is also not helping the market, especially as US equity valuations are relatively high.

While some banks announced good results, some blue chip names – such as Apple, 3M and Caterpillar – disappointed. Tech and financials did relatively well during the period while health care, utilities and energy stocks lagged. Some mega take-over projects also supported sentiment in the US, with British American Tobacco Plc’s $47 billion bid for Reynolds American Inc., and AT&T Inc. eyeing up Time Warner Inc.

With the US presidential elections, uncertainties remained in the market in October, leading to some investors adopting a wait-and-see stance.

  • We have reduced our positions in Real Estate for several reasons, mainly rate sensitivity
  • Our focus remains on Banks (yield-curve steepening) and Healthcare
  • Biotech and Pharma recently suffered, but the election results should support these sectors as Mr Trump is far less interventionist in drug-pricing. By the way, California voted on Proposition 61 (that would have prohibited the state from buying any prescription drug from a drug manufacturer at a price over the lowest price paid for the drug by the United States Department of Veterans Affairs), voting against it
  • Utilities and Telecom might suffer, depending on the evolution of the yield curve (level and shape)
  • We cannot exclude a repatriation act that would allow repatriation of cash that has been booked outside the US at a lower tax rate
  • Some CDI companies that relocated their production to Asia might suffer as a result of the potential pressure on international flows imposed by the new president’s administration
  • Energy and defence companies might benefit from the current context

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