Macroeconomics and politics
Trump wins: market moves and our views on the impacts
7 Nov 24 10 min read
Donald Trump is elected the 47th president of the United States. The Senate has been won by the Republicans. We don’t yet know which party will control the House. If the Democrats manage to retain control it will temper Trump’s spending policies and hence market moves.
We have a result which is good news for markets. If the presidential election wasn’t resolved quickly or we had a contested result then the stock market may have reacted badly.
As of this morning, we’ve seen the following reactions in markets in the immediate aftermath[1]:
- US: S&P 500 Index equity futures are up 2.3% while Nasdaq 100 Index futures are up 1.8%
- US 10-Year Treasury Bond yield is up 0.15% to 4.4% pa
- The US dollar is up 1.3% against the pound
- China equities are down -2.7%
- Japan stocks are up 1.9%
- The Mexican peso, which is seen as vulnerable to the tariff plans, is down 3% against the US dollar.
We think the impacts of Trump’s victory are:
- Positive for stocks over the long-term, particularly US equities due to corporate taxes falling.
- Negative for government bonds in the short-term, as higher unfunded borrowing from Trump will push up bond yields and reduce prices.
- We think the US dollar will get more expensive compared to other currencies, which is bad for emerging market stocks and bonds. It could further boost the performance of US stocks for UK investors, because of sterling/dollar movements.
Our view going into the election was that equities would benefit regardless of the winner, due to some uncertainty being removed. In our tactical asset allocation, the portfolios hold more equities and less bonds. Our short-term tactical equity views hold more in US equities, which we think will be boosted by the election in the short-term. Trump’s proposed reduction in corporate tax rates will boost future profits of US companies.
We don’t see material changes in the outlook for the large US technology stocks. The factors that impact these stocks like development of Artificial Intelligence and regulation are bipartisan policies but we think share prices will be boosted along with other global US companies in the short-term.
Our long-term view is to hold more in emerging market and Asia equities. Some emerging market equities will be impacted by a Trump administration because exporters like China and Mexico will face headwinds from disruption to global trade. Taiwan and India are less likely to be impacted. We think some of the disruption to emerging markets has been priced in already. Beyond the election, the investors are focusing on stimulus measures being announced from China. We expect China to increase the size of its stimulus plans given the election result.
We hold fewer government bonds in the portfolios and more in corporate bonds. We think the outlook for government bond is negative with Trump in the White House. Trump will continue to borrow and the debt trajectory will worsen compared to Vice President Kamala Harris’s policies. If Congress is divided spending plans may be more limited.
While elections and policy matters, the economy and business cycle are more important to the market performance in the long run. With the election concluded, we expect attention to return to assessing the outlook for company profits, the global economy and inflation.
[1] The Hang Seng Index was used to measure the performance of China equities and the Topix Index was used to measure the performance of Japan equities. All equity returns are in local currency.
Past performance is not a reliable indicator of future performance. The value of an investment can go down as well as up and your client may get back less than they’ve paid in.