With no clear indication of who the winner will be ahead of the 5th November, the convincing nature of Trump’s win came as more of a surprise than the victory itself.
Markets may have been pricing in a Trump win for some time, as he was polling well ahead of Biden earlier in the year. However, there has been considerable market volatility over recent months so it is best to avoid too many hard conclusions.
Equities, bond yields and the dollar were all considered future winners as taxes were expected to be cut under Trump. Harris was being seen as bringing clearer trade policy and international relations but, despite her promise to cut taxes for lower earners, she never shook her association with higher taxes and was perceived as less favourable to business.
It was Harris and the Democrats’ failure to convince the US electorate that the economy was the success it has recently become that ultimately brought their downfall. The economy, and more specifically higher living costs, were the number one concern for Republican voters. Whatever the economic growth figures show now, inflation meant that the benefits had not been felt in voters pockets by 5th November. The latest national statistics did not reflect lived experience for too many people.
The US economy certainly has been roaring back. Third quarter GDP growth came in at a healthy 2.8% quarter-on-quarter annualised, confirming that the US is outpacing other developed economies by some way. It is performing well ahead of the UK and Europe. Third quarter earnings season began with strong results from the banking sector. Results were mixed for technology companies, particularly those reliant on semiconductor demand, which caused some volatility. There is a continuing belief that whilst the big tech stocks may not be delivering at the pace set in recent times, there is plenty room for other sectors and stocks to grow, and recession will be avoided.
Trump can now ride this wave of economic growth. Where he may come unstuck is a trade war with China, in particular, as high tariffs could push prices up further. He will hope that these can be offset by lower taxes, and increased domestic production. This will also be a concern outside the US. Markets in the UK and Europe, closely tied to the U.S. and Chinese economies, may react negatively if a trade war seems likely. There is a global ripple effect from US-China tensions.
The Fed cut interest rates as expected by another 0.25% on 7th November and this was widely expected regardless of the outcome of the election. They remain more concerned about the job market than inflation. However, they will keep a close eye on whether tariffs bring in more inflation.
Trump is famously unpredictable, another concern typically for markets, but this is not his first stint as President. Markets were cautious when he won in 2016, fearing the worst, but gradually grew in confidence and the markets rose. This time around they seem to be more positive immediately, and markets have already seen an uptick. He may be unpredictable, but they may feel they have seen this movie before.
Business friendly tax cuts may help finance and tech stock earnings. Defence stocks got a boost in his last term with increase military spending and energy stocks will be hoping for a reduction in regulatory restrictions. Each sector will be watching for threats and opportunities.
As we have said many times before markets are not political, they just prefer certainty, so now that the election is out of the way they should settle down.
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