The US elections are finally over (phew!), and while the outcome of every race has not yet been determined, the outlook for control of Congress and the White House has become considerably clearer. Donald Trump has been elected the 47th President of the United States. Republicans have picked up a majority of a few seats in the Senate. Control of the House of Representatives has not yet been called, but it’s likely that Republicans will hold onto their majority.
There is so much to talk or write about, but this one-pager will seek to simply highlight a few key points for consideration. Overnight, US sharemarkets surged, with key indexes rising strongly, in some cases by 3% to 5%. Not so much in the bond market, where Treasury yields surged, and prices fell.
The key planks upon which Trump campaigned were lower taxes, de-regulation, tighter control of migration policy, and tariffs. Markets have interpreted this to mean that corporate America will get to enjoy a reduction in the corporate tax rate, economic growth will be higher, the US dollar will be strong; but tariffs and migration policy will probably have an inflationary impact. There was little discussion about federal debt or budget deficits during the campaign by either party.
Top investment implications:
Winners | Losers |
US share markets | Inflation (stays higher for longer) |
US dollar | Bonds (yields rise further) |
Merger and acquisition activity | Interest rates (US Federal Reserve will have to contend with new inflation pressures) |
Tech and Financials sectors | International trade with introduction of tariffs (or higher tariffs) |
| Green and environment stocks |
What about Commodities?
Impact is neutral/negative for commodities (USD strength a negative, but higher growth a positive).
Trump 2.0 will make the US Federal Reserve’s (Fed) job much more complicated. His proposals for aggressive tariffs on imports and large-scale deportations of undocumented migrants introduce major uncertainty around the Fed’s dual mandate of maximum employment and stable prices. Fed funds futures now suggest that the Fed will only have room to cut rates four more times between now and the end of 2025 to 3.75%-4%. As recently as last month, trading suggested that the Fed would make seven cuts in the same period.
Of course, a lot of what Trump promised may never eventuate. He might decide not to impose tariffs that are so high, and he may not do it quickly upon taking office. He might not deport millions of undocumented migrants. He might not win the House of Representatives and be unable to lower the corporate tax rate. That said, we are inclined to think that inflationary pressures will be higher than they would have been under a Democratic administration.
