Industry reacts to implications of Trump presidency

Donald Trump is back in the White House. He becomes the 2nd American president to serve two non-consecutive terms with Grover Cleveland (22nd and 24th president of the United States, serving his first term from 1885 to 1889, then his second term from 1893 to 1897, with an interruption during which Benjamin Harrison was president).

Trump, 78, secured more than the 270 Electoral College votes needed to win the presidency.

Among the early industry reaction as the final voting numbers in the US election slowly conclude, Justin Onuekwusi, CIO of St. James’s Place said: “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.

Hetal Mehta, head of economic research at St. James’s Place added: “Given the focus of Trump’s campaign messaging on tariffs, as well as his use of the use of tariffs in international negotiations in his past term, we expect these to be a key feature of his second term. This could have a short-term inflationary impact, especially on sectors such as traditional energy, financials and defence, as companies seek to pass on costs through price increases.

“Looking ahead slightly further, Fed Chair Jerome Powell’s current term in office ends in 2026. As Chair, Powell’s policies are key to keeping inflation under control. With Trump potentially preferring an alternative Fed Chair, policy uncertainty could increase further.”

Onuekwusi further considered the impact on fixed income and equity markets: “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.”

John Plassard, senior investment specialist, Mirabaud Group, said: "Donald Trump is back in the White House. He becomes the 2nd American president to serve two non-consecutive terms with Grover Cleveland (22nd and 24th president of the United States, serving his first term from 1885 to 1889, then his second term from 1893 to 1897, with an interruption during which Benjamin Harrison was president).

"It's a feat that highlights a fracture in the American electorate, with a Democratic party that failed to rally its electorate behind him."

"His “America First” policy will revive the energy, defence and manufacturing sectors, boosting domestic investment. But beware: this protectionist approach could lead to higher inflation, while tariffs would increase production costs.

"The federal deficit, meanwhile, could widen further under the combined effect of tax cuts and increased military spending. On the geopolitical front, tensions are likely to intensify, especially with China and Iran, while transatlantic relations could become more transactional. If Europe had hoped for appeasement, it could find itself confronted by a more direct and demanding American diplomacy.

"In short, Donald Trump's return promises a revitalised US economy, but at the cost of strained geopolitical stability and a record (US) deficit.

"Finally, we note that unlike 2020 and 2020 (mid-term elections), the absentee ballots (counted first) were rather favourable to the Republicans, meaning that Donald Trump succeeded in “remotivating his troops” and that Kamala Harris was not convincing enough."

Plassard continued: "The Democratic Party is likely to go through an annus horribilis, blaming Joe Biden in particular for not announcing his 'retirement' sooner."

Nigel Green, the chief executive of deVere Group, said: “Wall Street is seeing renewed optimism as Trump’s pro-business policies are expected to boost various industries.

“His proposed tax cuts, deregulation, and infrastructure investments have long been viewed as favorable to corporations, driving a positive outlook for equity markets.

“Industrials, energy, financials, and tech stocks are likely to see the most immediate gains as investors anticipate growth-friendly policies.

“Industrials, in particular, could thrive under a Trump presidency as his administration would likely push for massive infrastructure spending. Energy stocks, especially in oil and gas, are expected to rise due to Trump’s deregulatory stance, favoring fossil fuel production.”

Morgane Delledonne, head of investment strategy, Global X ETFs Europe said: "With the US Presidential results nearly in, markets are rallying around key sectors! Trump’s projected win brings momentum to tech, infrastructure, and defence, as investors anticipate growth fuelled by pro-industry policies. S&P 500 futures are climbing, the dollar is gaining, and bond yields are surging, reflecting bullish sentiment in US equities.

"Companies with strong domestic operations are well-positioned to benefit from this new landscape, with financial and industrial stocks showing strength.

"This could be the start of a new bull market as investors look to sectors set to thrive under a Trump-led economic approach."

Oliver Blackbourn, Multi-Asset Portfolio Manager at Janus Henderson, said:  "Yet another highly divisive US election looks to have brought Donald Trump back into the White House, defeating Kamala Harris as prediction markets had suggested for some time.

"In addition, the Republicans have flipped the Senate, taking over 50 seats, and are doing well in the race for control of the House of Representatives, although this remains too close to call for most commentators currently. This outcome is expected to result in more stimulus for the US economy, although the scale will be dependent on whether Republicans have full control of Congress.predicted for some time.

"In addition, the Republicans have flipped the Senate, taking over 50 seats, and are doing well in the race for control of the House of Representatives, although this remains too close to call for most commentators currently. This outcome is expected to result in more stimulus for the US economy, although the scale will be dependent on whether Republicans have full control of Congress.

"As expected, following such a major event, markets have reacted rapidly. Futures markets suggest the S&P 500 will open up over 2% and the NASDAQ up 1.7%. However, the standout parts of the US market are the S&P Midcap 400 and Russell 2000 indices, where futures are showing gains of over 4% and 5% respectively. This is unsurprising, given the indications that Republicans will look to keep existing tax cuts in place and aim to do more.

"Perhaps the most surprising outcome so far is the strength of stock markets outside of the US. European and Japanese equities are performing well, and the downside in China is perhaps less than many had feared, despite the incoming President’s threats to global trade. The US dollar is seeing strength across the board as markets consider the potential impact of further tariffs on imports and Federal Reserve cuts have been further priced out. US Treasury yields have risen sharply, due to both the continued evolution in interest rate expectations and the potential for higher inflation."

Blackbourn continued: "Markets are now likely to start thinking about how the rhetoric translates into policy, with every pronouncement in the coming months going to be pored over for hints. With the general view that both parties would continue to run budget deficits, it looks likely that the US economy will remain hooked on the growth high of fiscal stimulus.

"The effect that this has on the Federal Reserve may take some time to become clear as the FOMC will be reluctant to take anything into account until there is greater policy clarity. Markets will need to wait to see whether the Federal Reserve is willing and able to push back against a hot economy.

"The US economy has been performing strongly, as shown by 2.8% annualized growth in the third quarter, and a continued run of positive data surprises. However, with the prospect of fewer interest rate cuts, bond markets already worried about the US debt mountain and rising long-term Treasury yields, investors need to be careful that higher-for-longer doesn’t start to become a problem for the economy.

"A soft-landing feels broadly priced in, but there are cracks in some areas of the economy that may widen if interest rate cuts do not materialise to a large enough degree. For the moment, though, markets are focused on the upsides that come with certainty after an election and the prospect of pro-growth policy."

Stephen Dover, chief market strategist, head of Franklin Templeton Institute said: "US equity futures markets are responding favourably to the probability of a Trump presidency and a possible ‘clean sweep’. US equity futures have risen over one percent, with a larger gain from the broader Russell 2000 futures index. The biggest winners will be sectors and industries welcoming a more business-friendly regulatory environment, including fossil fuel energy companies, financial services and smaller capitalization companies. Fears of caps on prescription drug prices will recede, boosting the fortunes of the pharma sector.

"The bond market, in contrast, is selling off sharply, with ten-year Treasury yields approaching 4.50%. Bond investors are reacting to the probability that tax cuts will not be accompanied by significant spending restraint. The bond market also anticipates stronger growth and possibly higher inflation. That combination could slow or even halt anticipated Fed rate cuts.

"The US dollar is advancing on foreign exchange markets, boosted by the combination of higher US bond yields and the anticipation of strong inflows into US public and private equity markets."

Nazmeera Moola, chief sustainability officer, Ninety One said: “The Republican victory is likely to see the US retreat from all global climate initiatives – much like we saw in the first Trump presidency. This is likely to slow momentum to combat climate change unless other parts of the world step up and fill the gap.

"We do think that countries like China and India will continue to focus on energy transition related investments – as these investments have been driven by their positive financial benefits and impact on growth to date. While a red sweep is net negative for climate considerations, we do not expect a blanket repeal of all elements of the Inflation Reduction Act.

"Large portions of the IRA are increasingly being defended by republicans – whose districts benefit from the investment. However, if elements like the green hydrogen credits are retained, we are likely to see amendments in the manner in which they are implemented that would result in more questionable climate outcomes. The republican victory opens the door for tax credits for EVs to be rescinded.

"However, the proposed tariffs will provide some insulation from US EV producers from cheaper Chinese competitors. Other considerations include the impact of the prospective tariff hikes on the cost of new renewable projects in the US and the likely expansion of oil and gas exploration on federal lands as environmental regulation is rolled back.”

Thys Louw, emerging market fixed income portfolio manager, Ninety One said: “With Donald Trump prevailing in the US election and a Republican clean sweep appearing highly likely, the focus will now shift to policy priorities under a second Trump administration.

"The initial market reaction reveals the expected policy mix to comprise more expansionary US fiscal policy, reduced government regulation, a change in geopolitical stance, and increasingly aggressive trade policy towards global manufacturing centres such as Europe and Asia. This has reflected in the market trading with a reflationary/risk-on tone in US assets (higher treasury yields, stronger equity futures and stronger dollar) while currencies such as euro and Mexican peso have been the main underperformers as they are likely to find themselves in the crosshairs of trade policy.”

“Within emerging markets, despite a stronger dollar and higher treasury yields, we note that the reaction has not been as broadly negative as feared, for instance, high-yield credit markets have largely performed well given expectations of stronger risk markets, while sovereign debt markets such as Ukraine are rallying on the expectation of expedited peace negotiations under a Trump administration.

"Looking ahead, several key events over the next few days could help shape the short-term outlook for emerging markets in the face of trade and tariff uncertainty, namely the Chinese National People’s Congress (NPC) meeting, which will give guidance on the size of Chinese fiscal support; the November US Federal Reserve meeting; and finally a 30-year US treasury auction, which will be important in providing an anchor for longer dated treasury rates.”