Originally published at: This week in charts: Trump wins and rates are cut – InvestEngine Insights
With Donald Trump being elected the 47th president of the United States this week, the market reaction was swift.
Tesla was the standout performer on Wednesday, rising 15% in US dollar terms due to Elon Musk being one of Trump’s most vocal advocates. Cryptocurrencies also performed well, given Trump’s historic crypto-enthusiasm, as did US small caps, which are predominantly domestically-focused US businesses, and are seen to benefit from his import tariffs and general protectionist policies. The US market in general rose in the hopes that Trump’s pro-business and tax-cutting agenda would boost company earnings.
The flip side to his policies is that tariffs on imports, tax cuts, and reduced immigration are all likely to push costs and prices up – which is bad for inflation. His election therefore resulted in an increase in expectations for US interest rates. This had the knock-on effect of causing bond prices to fall and the US dollar to rise (as both are closely tied to rates). Emerging Markets also fell on the day of the election results, as a high proportion of Emerging Market debt is denominated in US dollars, and when the dollar strengthens, as it did on the 6th November, this causes the cost of that debt to rise.
Looking slightly closer at the US market, we also saw on Wednesday a significant sector shift happening within the S&P. Riskier sectors of the market were propelled higher, with safer sectors lagging behind. Financials, which benefit from higher interest rates, were up 6% on the day, while the real estate sector, which famously does not, fell.
For those keeping count, the Trump trade helped the S&P 500 notch another handful of all-time highs this week. The yearly tally for 2024 now stands at 49:
The cuts are back
In non-election news, both the UK and US also had central bank meetings this week. Both were expected to cut rates by 0.25%, and both acted as expected.
With the UK’s headline inflation rate now below the BoE’s target of 2%, reaching 1.7% in September, the bank felt a cut was warranted. However, the accompanying comments by BoE governor Andrew Bailey suggested another rate cut this year is unlikely – a result of both sticky services inflation, which remains high and is a closely-watched indicator by the BoE, and the recent Labour party budget, which is seen as being inflationary due to the increasing levels of UK government borrowing.
The Fed also cut rates by 0.25%, to a range of 4.50%-4.75%. Despite the rise in rate expectations under Trump administration, its downwards path is still forecast to be slightly steeper than the UK’s:
Important information
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.
This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.
Tax treatment depends on personal circumstances and is subject to change, and past performance is not a reliable indicator of future returns.