US Presidential Election
The potential impact of a Trump Presidency on the rest of the world
The incredible US Presidential Election result that we woke up to on Wednesday 6th November is still being digested. Kamala Harris and the Democratic election machine, ran an insipid campaign that failed to motivate the US electorate to vote in Americas first female President. A failure by the Vice President to differentiate herself and her policy agenda from Joe Biden proved to be fatal.
So where does this leave politics in the US and what are the implications of a second Trump Presidency for the wider world ?
It appears that President Elect Trump is far better organised this time than he was in 2016, when his victory seemed even to surprise him. He has had time to pull together a team to fill his cabinet posts with credible individuals and also staunch Trump supporters. He should have learned from the mistakes he made in his first term and if he gets a clean sweep of Congress along with the Senate, he has significant leverage to get his economic policies enacted. There is enough concern within the Republican party however about running large government deficits, to indicate that Trump will not get 100% support from his own party, which may well limit the ability he has to deliver all the promises he has made through the election campaign.
We know that Trump will bring in a lower tax environment based on what he has said during his campaign. This lowering of tax will boost sentiment and spending on a short-term basis which will help to keep the economy ticking along. He has also indicated however that he will start applying import tariffs in 2025 which would increase inflation expectations which could have the impact of reducing the scope of the Federal Reserve to loosen interest rates to the extent and at the pace that was previously expected. A 10% tariff surcharge on all US imports and 60% tariff on imported goods from China has been predicted to raise CPI by about 1%. Any retaliation by way of tariffs by foreign governments would weaken US exports. In a global trade war nobody wins and the hope would be that more reasoned heads would offer counsel to President Trump that would dilute some of the extreme proposals Trump has proposed bringing into legislation.
In the short-term then, a positive backdrop for Equities but less so for Bonds.
Politics can have an impact on how markets react, but they are just one influencer. The fundamentals of corporate profitability and valuation are the key factors that drive equity returns and at this juncture corporate profitability is supportive of a continuation of the progression in the value of risk assets. This would leave us to continue to recommend multi-asset investment to diversify risk in this evolving cycle, to offer the potential to generate growth.
As is always the case, Scott and I will be happy to speak to you individually if you need further support or information about markets.
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