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Fairview US Election view

Once again the pollsters had a shocker, and the bookies were more prescient. President Trump has decisively regained office and in his own words been given ‘a powerful mandate’. The Republican Party have also taken a majority in the Senate. At the time of writing, control of the House of Representatives is undecided but a ‘red sweep’ is feasible.

Stock market investors have welcomed a swift, orderly outcome and believe Trump’s pro-business approach should be positive for many areas. Should Trump gain full control then he should be in a strong position to implement fiscal policies which based on his election promises could result in significant fiscal easing driven by tax cuts.  His promise to cut corporation tax has been a key positive for US markets. However, the implementation of policies will take time and the effect of stimulus unlikely to be felt until 2026. Tax cuts mean a bigger deficit, something that has been worrying bond markets.

As well as tax cuts, the imposition of Tariffs (his favourite word) will be a key change of policy, although the Democrats were also in favour of tariffs on China, maybe not as high! President Trump sees it as a big revenue raiser but the prospect of a global trade war is serious if he follows through with his threat. The talk of a 60% tariff on Chinese made goods may be an opening bid and will probably be diluted. But like the fiscal stimulus, tariffs tend to be inflationary and retaliation would have a negative impact on global growth.

His other key promise of immigration policies may not be carried out in the draconian way he campaigned for, but citizenship rules are likely to be tightened. Regarding foreign policy Trump has been vocal about withdrawing support for Ukraine. This may lead to a quicker resolution but more on Putin’s terms. Conflict in the Middle East may also see a swifter resolution. The US is unlikely to support NATO in the same way and it is realistic to expect higher defence spending in Europe & Asia.

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Market implications

So who are the winners and losers?

US equities have rallied on the back of the results. With more deregulation promised, there could be a boost for many sectors such as food production and social media. Fossil fuels will not be penalised, although increased supply may keep down the oil price. Financial companies should benefit from higher rates and looser regulation. Leading banks such as JPMorgan saw their shares rally over 10% on the result. Insurance could be a net positive winner too.

US Small companies have broadly welcomed the pro-business backdrop of looser regulation, fiscal spending and protection of domestic businesses from tariffs. The Russell 2000 index rallied 4% on Wednesday and the environment may provide an opportunity to diversify US exposure from expensive larger companies.

In terms of currency the dollar has strengthened on expectations of a stronger economy and higher interest rates. Trump’s re-election is a boost for the Crypto industry, which invested a lot in Republican Congress campaign. Trump launched his own crypto 6 weeks ago…

In terms of detractors Trump’s economic policies of tax cuts and tariffs are likely to be inflationary and bond markets and interest rate sensitive areas such as real estate and infrastructure haven’t welcomed the result. So far, the US Bond market is not reacting as badly as may have been expected. The 10-year US Treasury now trades at 4.5% with the US Government benchmark having lost 1% when the result became clear.

But monetary policy is not likely to see a dramatic short-term shift and most continue to believe that the direction of interest rates will be downwards. This will be supportive for interest rate sensitive areas at current levels. A 0.25% US rate will (probably) be announced in the November meeting today & the Fed may also cut 0.25% in December. As we said earlier fiscal easing is unlikely to come in to play in 2025 so next year’s projected rate cuts could still happen. Trump is not a fan of Federal Reserve Governor Jay Powell and will not re-appoint him in 2026 so longer term policy is uncertain.

Elsewhere, the election of Trump is a negative for renewable energy as addressing climate change is not a priority and the area will not see the fiscal tailwinds that the Inflation Reduction Act provided. Higher interest rates will also be a headwind to the sector. There is also talk of rescinding the Chips Act.

Outside of the United States the impact of tariffs will have a negative effect in Europe and Asia. According to the FT, Europe is particularly vulnerable, with a fifth of European exports going to the US last year. Will European rate cuts be harder and faster now? China will likely bear the protectionist policies and increased China Government stimulus may be needed to help combat tariffs.

Overall, it does feel that there is now little chance of US recession and the US will be the driver for global growth. Although rates are likely to continue to fall, the likelihood of a “higher for longer” rate environment has increased, and the unpredictability of Trump policies may lead to more volatility over the coming months.

It is important not to make knee jerk reactions to investment strategy. Election outcomes are rarely the key determinant of market direction and unlike 2016 this is not a shock. Unlike the pollsters, the markets have been playing the Trump trade for several weeks and there has been significant re-pricing across asset classes both positive and negative.

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Thoughts and commentary on the outcome of the US election from Fairview Consultants, Independent Investment Consultants and members of the EXE Capital Management Investment Committee.

The views are those of the author only. The above does not constitute a recommendation to buy and advice should be sought from your financial advisor. The value of investments can fall as well as rise. Past performance is no guarantee of future returns.