Originally published at: US Election: Markets react to Donald Trump’s victory – InvestEngine Insights
From ballot boxes set on fire, social media spats, assassination attempts and volatile polling data, the reality show the US presidential election has become over the past 10 years has not fallen short of expectations.
As predicted, the race to the White House was in the hands of swing states which were poised to propel the electoral college vote to cross over the magic 270 line of electoral votes. With Pennsylvania, Wisconsin and Georgia flipping to the Republican party, Donald Trump has secured another term in office.
US markets have been pricing in Donald Trump’s win for some time, with US equities increasing by 21.24% year-to-date. This morning, US futures are trading higher, to as much as 3%. Bitcoin has reached an all-time high, crossing over $75,000 for the first time. Oil prices are trading lower with the US dollar also gaining strength.
As Americans face the fallout from the decision of who is best to steer the ship for the next four years, we take a look at where President Trump stands when it comes to the economy.
Inflation
Trump has promised to make America affordable again and to bring an end to high inflation, currently sitting at 2.4%. Despite the CPI number remaining more sticky than expected, many of his inflation-reduction plans hinge on cutting energy costs.
As a result, he seeks to expand oil and gas drilling coupled with deregulation, which may see the introduction of new tariffs in the sector.
Despite interest rates being outside of his control, Trump has promised to lower them. Currently, a 0.25% cut is being priced in for the Federal Reserve’s meeting later in the week.
Taxes
Trump is no stranger to deregulation. If his promises in the run-up to the election are to be kept, then this presidential term will be no different.
Trump has proposed several tax cuts amounting to trillions of dollars, which he is looking to fund through growth and tariffs on imports.
On the back of this, and the potential for widening the deficit, US treasury yields have increased this morning with the 10-year US Treasury now sitting above 4.40%.
Security and immigration
Trump’s protectionism stance remains firm as he vows to complete the construction of the famous wall and seal the border.
Despite some legal challenges, he has also promised the biggest mass deportation of undocumented migrants in US history.
Trade
Trump has made tariffs one of his principal campaign promises to protect US industries.
The returning president has proposed many new 10%-20% tariffs on most imported foreign goods, along with much higher ones on goods coming from China.
It’s too early to tell if the ‘trade war’ headlines will be coming back to our screens any time soon, but with Elon Musk strongly by his side and Chinese electric vehicles penetrating certain regions of the world, it wouldn’t be particularly surprising to see it continue.
Through lower corporate tax – a suggested cut from 21% to 15% – Trump also plans to entice companies to remain in the country to manufacture goods.
Foreign policy and geopolitical conflicts
On the global stage, Trump offers a heightened unpredictability, which is not to Vladimir Putin’s taste.
A long-term sceptic of global alliances, he has not ruled out withdrawing from NATO.
Trump has committed to “fundamentally re-evaluate” the US approach to the Russia-Ukraine conflict. More aggressively, he has also promised to end the war in Ukraine in 24 hours through a negotiated settlement with Russia.
Although a supporter of Israel, Trump’s specific position on the events in Gaza is currently unknown.
In his second term, President Trump’s stance on China continues in the same vein as his first, as he looks to take an even stronger stand against Xi Jinping.
Climate
While in office, Trump was no stranger to questioning climate scientists, previously dismissing the climate crisis as an “expensive hoax”. This later resulted in hundreds of environmental protections being rolled back, including the withdrawal of the US from the Paris climate agreement.
Whilst the current president has reinstated some of the US’ presence in these programs and protections, it is not clear if Trump is going to unwind them in his second term.
He has, however, committed to expanding the Arctic drilling.
Going forward
While market reactions have been positive for the morning, the longer-term implications on the deficit, deregulation and success in the inflation fight is something investors will pay close attention to.
Looking ahead, companies with strong domestic operations are well-positioned to benefit from Trump’s second mandate. His win brings momentum to defence, technology and infrastructure companies which markets anticipate will be fuelled by favourable policies.
While Trump can propose these policies, their implementation depends on congressional approval and potential legal challenges. The actual economic impact will be influenced by various factors, including global economic conditions, responses from trade partners, and domestic political dynamics.
In summary, Trump’s proposed policies aim to stimulate domestic economic growth through tax reductions and protectionist trade measures. However, these approaches carry risks such as increased inflation, higher federal deficits, and potential trade conflicts, which could have complex and far-reaching effects on the US economy.
A long-term approach
As ever, for investors, the key is to retain a long-term approach to investing and view these market movements within their broader contexts. Generally speaking, a long-term, diversified approach makes international moments like these less significant than they might seem.
Ultimately, this is a good reminder that what moves markets is changes in companies’ expected earnings, which are not affected directly by the presidential outcome. While company earnings can be indirectly affected by presidents’ policy changes, politicians matter less to markets than other factors such as monetary policy and earnings results (which both directly impact earnings expectations).
Timing the markets should be avoided, doubly so when investors are considering basing their decisions on events as uncertain as a presidential race. Investors remain better off focusing on the long-term, and should avoid making adjustments to their portfolio based on politics.
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Souce: Bloomberg
Correct at the time of publication: 11:00am 06/11/2024