Results are still coming in but Donald Trump has declared victory in the 2024 US election and markets are reacting. What do the experts say? PBI asks them
Looking at Trump’s campaign promises, as well as his actions during his last presidency in 2017, we expect his presidency to bring reduced regulations across the board. Additionally, it’s expected he will focus on immigration and a greater use of tariffs in international trade. How this will play out and be received by markets remains uncertain.
The 2024 election has been a divisive one. With so much noise, it is bound to have an impact. We remain focused on delivering long-term investment outcomes and maintain conviction in our current positioning. We think making bold calls on the future based on a single event can lead to poor decisions.
There is potential for higher short-term volatility in bond markets in the aftermath of the election. We think this is particularly likely around US Treasuries as sentiment adjusts to the result.
Possible higher inflation may also cause yields for long-term bonds to rise higher than short-term bonds . This is sometimes seen as a signal for the start of a strong economic period but can also indicate a time of higher interest rates.
As the US remains the benchmark for global fixed income, the broader global bond market may feel the ripple effects of this. We will continue to monitor these markets carefully and will adjust positioning should there be a material change in the outlook and opportunity set.
Given Trump’s focus on international negotiations, sectors tied to international trade – particularly tech and consumer goods – may experience more volatility. On the other hand, his emphasis on deregulation and corporate tax cuts could give short-term boosts to industries like traditional energy, financials, and defence.
US smaller companies could be more affected by any post-election volatility but we believe this to be a short-term concern. In our view, the valuation case for global small companies is currently strong and expect over the medium-term US small caps will do well. We will continue to watch this space with interest as Trump’s campaign promises materialise.
Elections, particularly ones as contentious as this, have a way of stirring up short-term market volatility. However, history has shown it is unwise to make significant adjustments based on political events. Market volatility is often based on speculation and not any change to fundamentals.
While elections may create temporary volatility, we believe remaining disciplined and building a diversified portfolio is the most effective means of delivering long-term value. It is important to remember the main risk from market events is the poor decisions we can make when they occur, rather than the ramifications of the events themselves.
With Donald Trump looking increasingly set for a triumphant return to the White House, the dollar has gained ground against a basket of currencies. Investors are bracing for tariffs and a clamp down on immigration, policies considered to be inflationary which are likely to mean interest rates may be more elevated in the years to come. Trump’s more renegade approach to trade is likely to push the US further away from global institutions and the rules-based order built up over many decades. But at the same time, expectations are high that a Trump presidency will mean fewer regulations on big tech and big finance. Although Kamala Harris could still pull off a win, her chances of victory have narrowed.
US futures point to a positive surge on Wall Street, with Tesla among the early gainers. Elon Musk is a staunch supporter of President Trump and traders are assessing that a second Trump administration see a lighter touch in terms of regulation. However, although a rally in tech may be on the way, trade tariffs could end up having negative consequences for the sector by potentially exacerbating trade tensions with China and disrupting international supply chains for key components. Bitcoin has also rocketed to a record high as crypto fans expect a more supportive regulatory environment.
On the bond markets, Treasury yields have been climbing sharply, as traders assess the implications of a fresh Trump presidency for inflation and US government borrowing. Not only is a raft of tariffs expected to be imposed next year if Trump wins, which will push up the price of imported goods for American shoppers, his vow to kick out immigrants with waves of deportations could also have economic ramifications, potentially pushing up wage bills for companies. His pledges of tax cuts are also considered to be inflationary and are also causing wariness about the huge US deficit swelling further. Republicans have already clinched the Senate but it’s still unclear which party will gain the upper ground in the House of Representatives which will also have significant implications for future budget agreements. If the House turns blue and the Democrats gain a majority it may limit the Republicans ability to bring in sweeping tax cuts.
There is a chance of course, that Trump won’t enact his most strident trade policies which headlined on the presidential election campaign. He vowed to increase tariffs by another 10% on most foreign products and impose much higher duties on goods from China. Even if such heavy tariffs are not swifty imposed, the threat of them is likely to make Chinese-US relations a lot more uncertain in the coming years and could hamper China’s economic recovery even further. However, his isolationist approach might make containing China over the medium and longer term more challenging, given that Trump isn’t likely to want to build alliances in the same way as we saw under Biden and this splintering effect may enable China to form new partnerships in a fractured world.
There are risks that inflationary pressures in the US, prompted by higher tariffs will be exported. As the dollar rises, countries which import commodities priced in USD may also see prices increases, which will either need to be absorbed by companies or passed onto customers. If other countries started to feel onerous effects of higher tariffs on their economies, there may be more demand for the dollar as it is considered to be a safe haven. This could be counter-productive to efforts to increase exports from the US as the stronger dollar is likely to make products of US exporters less competitive globally. When it comes to Europe, an increase in tariffs imposed on exports is likely to cause some pain, but given the dollar is also strengthening and is likely to be beefed up even further, due to inflationary pressures, the currency changes may help British and European firms maintain their competitiveness
Oil prices have dipped back amid expectations that under Trump more crude will flow from US wells. Given his America First mantra another Trump Presidency is likely to place emphasis on energy independence and his policies are likely to favour fossil fuels, promoting deregulation in the oil, gas, and coal industries. Brent Crude has edged down below $75 a barrel as traders also digest data showing that US crude stocks rose by 3.1 million barrels last week, more than expected. There is also a close eye being trained on the Fed’s commentary on Thursday after its decision on interest rates, which could also help build up a picture of expected demand in the world’s largest economy.
“2024 US election: the markets react” was originally created and published by Private Banker International, a GlobalData owned brand.
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