November 06, 2024
Former President Donald Trump has secured more than the required 270 Electoral College votes to win the presidency in addition to the popular vote. With the victory, he has become the second president in American history to win two non-consecutive elections.
U.S. equities are higher in reaction to Trump winning a second term. Although his proposed tax and regulatory policies are perceived to be positive for corporate profits, tariffs could end up squeezing profit margins and fortifying inflation. The president has the authority to impose tariffs; they do not require the approval of Congress. It is likely that the immediate focus of tariffs will be on China, accelerating the decoupling already underway.
The dollar is modestly stronger in anticipation of Trump's tax and trade policies. International developed equities, as measured by the MSCI EAFE Index, and emerging markets are higher as well. Meanwhile, Treasury yields are higher across the curve, on top of their rise in recent weeks, on speculation Trump’s proposed tax cuts and other spending plans will spark economic growth, but also widen the fiscal deficit and potentially reignite inflation.
REPUBLICANS WIN SENATE, HOUSE YET TO BE CALLED
As discussed in previous commentaries, and as illustrated in Figure 1, the most important outcome of the election is the degree to which the president-elect will be able to push his agenda through Congress. As expected, the Republicans now control the Senate, but control of the House has yet to be called and we may not learn the outcome for at least another week. Historically, a divided Congress has been most beneficial for market returns.
Figure 1
WHAT TO WATCH
In the early days of Trump's second term, he is likely to pursue executive orders on tighter immigration policy, energy policy and higher tariffs. His administration is also likely to begin taking steps to extend tax cuts from the Tax Cuts and Jobs Act of 2017, pursue business-friendly, pro-growth policies, deregulation and a tougher stance on China.
THE BOTTOM LINE
Looking beyond the election, we continue to believe the U.S. economy will grow at a modest pace, inflation will continue to moderate, although not in a straight line, and the Federal Reserve will be able to continue its easing path.
We believe our client portfolios are well-positioned for this economic landscape. Our overweight position in U.S. large cap should be a particular beneficiary. We will continue to monitor policy and its potential impact on business, economic and capital market cycles. It will take some time before this new political landscape takes shape, but we remain ready to make active investment and wealth planning decisions based on market fundamentals, our economic outlook and potential policy changes.
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