Evelyn Partners market update - 6th November 2024

Trump’s return: What it means for your investments and financial future.

Today Donald Trump has claimed victory in the 2024 US Presidential election race. At the time of writing, he has 279 electoral college votes, which is just over the 270 needed for victory.(1)

He is projected to take the key swing states of Georgia, North Carolina, Pennsylvania and Wisconsin and may also win all the states that have yet to announce their result. The Republicans have also won enough seats to reclaim the Senate and will likely retain the House of Representatives, giving them a clean sweep. With control of all three branches of government what can we expect from President Trump’s second term in office?

Much of what is said in an election campaign is rhetoric, spoken to woo voters, but we do know a few things a Trump government stands for: lower taxes and less regulation. We look at the initial reaction and what the impact of these might have on the markets and your investments.

Initial reaction

One of the biggest fears going into this election was a close outcome. A contested result could’ve led to civil unrest and a repeat of the 2021 Capitol Hill riots. Today’s result reduces that risk, and eases these concerns, particularly as Trump is on course for a significant victory and has won the popular vote (something he didn’t do in 2016).

The US dollar rallied to a three-month high against a basket of leading currencies while the US futures markets are indicating equities will rise when the US stock market opens. However, Bond prices fell and yields rose as investors priced in the prospect of higher borrowing and inflation.

Internationally, stock markets are generally up across Europe, Japan and Asia although Chinese markets fell. Some cryptocurrencies also saw a boost with Bitcoin rallying to an all-time high. This is on the belief that Trump plans to relax regulation of cryptocurrencies as he paves the way for the US to be the “crypto capital of the planet”.(2)

Will we see a repeat of 2017?

In 2017 Trump took a different approach to the presidential role. His background as a businessman, rather than a politician, was clear and his diplomatic style caught many off guard.

While Trump is unlikely to adjust his style the US and rest of the world know what to expect. We should still expect Trump to be as active in 2025 as he was in the first 100 days of his presidency in 2017 and if the Republican’s get a clean sweep, then he could get his policies through more quickly.

Trump inherits healthy economy

There have been some concerns that the US economy may enter a recession and there are also worries over elevated tech stock valuations, particularly in the Magnificent Seven (Microsoft, Apple, Nvidia, Tesla, Alphabet, Amazon and Meta). However, the US economy remains healthy. The US Federal Reserve (Fed) has started cutting interest rates and the economy is proving resilient, it grew 2.7% for the year to 30 September 2024.(3)

Trump's tax policies

Trump plans to make the income tax cuts from the Tax Cuts and Jobs Act 2017 permanent before they expire next year. He also wants to reduce corporation tax to 20% and potentially as low as 15% for companies that make their products in the US. To pay for the tax cuts Trump wants to introduce tariffs on all imports. The overall objective is to encourage countries, such as China, to invest in manufacturing plants inside the US to create jobs.

Tariffs have the potential to be inflationary through higher prices which subsequently might impact consumer confidence and economic activity. Cutting corporation tax could, according to Goldman Sachs, boost the earnings per share of the S&P 500 by 4% and would be positive for US equities, which rose when US stock markets opened this afternoon. However, it could also lead to higher government debt which may impact the bond markets on concerns over burgeoning debt. US government bonds prices fell and yields rose this morning reflecting this concern.

Deregulating the US

President Trump has a track record of deregulation, in his first term he lowered fuel efficiency standards for vehicles, scaled back environmental permit requirements and relaxed financial and technology regulations.

We expect further changes this time around and that he may extend them beyond what he introduced in 2016. This is because the Supreme Court, which leans to the conservative side, has made it easier to challenge and change existing rules.

Three election themes that could impact your investments

There are three main election themes to take note of that could influence your portfolio, particularly the portion exposed to the US market:

Fossil fuels - Trump is supportive of the oil and gas industry but less keen on renewables. With greater control of the US legislative, he may slow spending and investment in this area whilst removing restrictions on oil and gas companies.

Foreign policy - In his de facto acceptance speech this morning, Trump repeated he wants to stop the wars, particularly between Russia and Ukraine. A de-escalation of military conflicts would be negative for aerospace and defensive companies which have performed well in recent years, and sit on high valuations, as geopolitical tensions have risen.

US-China trade deal - The primary objectives of the tariffs Trump wants to introduce is to encourage international investment, especially from China, into the US. We expect that they could be used to negotiate a trade deal with China which would be supportive of Asian equities, although it is worth noting that Chinese equities fell on the news of Trump’s victory.

What should investors expect?

Investors were worried about an unclear result to the US elections. However, with Trump on course for a decisive win these concerns have abated.

Combined with the likelihood of a Republican clean sweep investors can expect taxes to remain low, tariffs on goods manufactured abroad and less regulation in the US. Overall there is likely to be relief in some quarters that the election wasn’t as close as expected and the risk of civil unrest that followed the 2020 election result doesn’t look like it will be repeated. As the excitement of the US election fades, investors’ attention will shift back to economic fundamentals and the ability of businesses to deliver shareholder returns.

Sources: (1) Bloomberg.com, US Presidential Election Results, 6 November 2024 (2) MSN.com, Bitcoin surges to new £58,000 record hours after odds slashed on Trump win, November 2024 (3) LSEG Refinitiv / Evelyn Partners

Important Information

The value of investments and the income from them can go down as well as up, and you can get back less than you originally invested. Past performance is not a guide to future performance.

Issued by Evelyn Partners Investment Management LLP and Evelyn Partners Investment Management Services Limited which are authorised and regulated by the Financial Conduct Authority. Further details about the Evelyn Partners group are available www.evelyn.com.