• Equity indices are trying to find their way through murky waters
• Geopolitics, Trump and the Fed cloud the outlook
• Small capitalization stocks’ rally might have legs
• Post-Thanksgiving Santa Claus rally could further boost equities

A plethora of factors dampen risk appetite

While the US is preparing for the annual Thanksgiving holiday and the famous Black Friday shopping spree, stock markets are trying to find their footing after the US presidential election. Geopolitical events, Trump’s government plan and the mixed expectations for the December Fed meeting are firmly in the market participants’ minds and will most likely dictate price action over the coming sessions.

Geopolitics could dampen risk sentiment

Despite the progress made with the announcement of the ceasefire between Israel and Hezbollah, recent developments in the Ukraine-Russia conflict are casting a shadow over the markets. There is a heightened risk of further escalation as the rhetoric from both sides remains aggressive. During the US pre-election campaigning, Trump was confident that he could sort out this conflict in one day. However, reality can be different and hence this conflict will most likely remain a headwind for risky markets.

Tariffs are becoming part of life now

President-elect Trump has generally been quiet, carefully assembling his team, apart from when commenting on his favorite tariffs. Trump has already announced his intention to impose 25% tariffs on goods from both Canada and Mexico, and to increase existing tariffs on China by 10%. This is not surprising considering Trump’s first term and his “America First” agenda, but large US-based multinationals are probably already scrambling to implement their emergency plans to manage the impact of tariffs.

The market is potentially underestimating the chances of a Fed pause

Amidst this environment, the Fed is preparing for the December 18 meeting. The latest Fedspeak has been mostly mixed, opening the door to a rate pause in December. While the Fed minutes from the October meeting were a touch dovish, yesterday’s US PCE report puts the rate pause option firmly back on the table.

US stock indices record another green week

Most US equity indices are slightly in the green this week, with the traditional Dow Jones index leading the charge. Asian stock indices are also in positive territory, although the same cannot be said for the European ones. This picture is similar on a monthly basis, with US indices outperforming their key counterparts.

Interestingly, the Russell 2000 index is up 10% in November. This is the best monthly performance since July 2024, when it also achieved a strong 10% return, outperforming the more established US stock indices. The Russell 2000’s performance is not surprising, as Trump’s second term is expected to benefit the small and medium-sized US-based corporations.

According to chart 2 below, the post-election performance of the Russell 2000 index is quite similar to its 2016 post-election day price action, when Trump won his first term. Compared to the S&P 500 index, which is performing better than 2016, one could say that the Russell 2000 rally might have legs

Could the Santa Clauss rally start after Thanksgiving?

Market participants believe that risky assets tend to rally towards the year-end, with some investors being very confident that this Santa Claus rally commences after the Thanksgiving holiday. Based on 33 years of data, the S&P 500 index finished in the green in 76% of the periods examined, averaging a 1.6% return, while the Russell 2000 index performed slightly better by achieving a positive return in 79% of the years, and a higher average 3% gain.

The findings are even more impressive when focusing on the election years. Since 1991, the S&P 500 index finished in positive territory in six out of eight periods examined, with an average gain of 1.4% recorded. Remarkably, the Russell 2000 index rallied in each of the eight periods examined, achieving an average return of 4.7%.