Domestic Politics

A series of notable events took place over the Thanksgiving holiday but none of them force us to change our fundamental assessments. The conflict in the Middle East is likely to escalate rather than de-escalate, while the Taiwan Strait has at least a 50/50 chance of seeing tensions escalate next year.

President Biden is facing foreign challenges on three fronts and these challenges are coalescing around the critical states of the Midwest. Take risks off the table and stay defensive in 2024.

Investors should not get their hopes up about the Biden-Xi summit. Wait to see if a new ruling party is elected in Taiwan before downgrading geopolitical risk in the Taiwan Strait. US-China strategic détente is possible but neither the geopolitics nor the macro backdrop warrant a risk-on position next year.

The Netherlands has a healthier and more stable economy and demography than its European peers. Investors should stay overweight developed European equities, including Dutch equities, relative to emerging European equities.

Results from Tuesday’s elections suggest that the Democrats are doing better than what their 2024 polling are showing. While the results are marginally positive for equities, investors should not overrate this off-year election, especially considering the slowing economy and the many foreign challenges facing the US.

Stronger US growth elicits a response from the House Republicans. But a government shutdown is not devastating to the economy. What is more devastating would be a crisis in the Middle East, Europe, and Asia. Stay long US defense, energy, and large caps stocks.

More equity volatility is coming in the short run. Trump’s nomination looks to be smooth, which marginally reduces the incumbent party advantage and increases policy uncertainty.