The U.S. election 2024 brought a stunning GOP victory, with expected shifts in fiscal and trade policies likely to impact global markets. This overview dives into the potential economic impacts, from bond yields to sector-specific winners and losers, helping investors understand the post-election landscape.
Key takeaways
A Trump victory is expected to bring market-friendly policies that will be positive for equity markets, using the same playbook from his first term as President. Tax cuts and other fiscal stimulus will likely be inflationary, pushing the US dollar and bond yields higher for longer.
We expect the Trump White House and Republican Congress will look to enact an expansive policy agenda. It is unlikely the Democrats will be able to prevent the conservative policy agenda given the Republicans unified control of government. This will have distinct winners and losers with financials, energy, and healthcare companies benefiting the most. US small caps stand to benefit as they are more cyclical and domestically focused.
The possibility of protectionism/tariffs is likely to have a negative impact on European and Emerging Market economies, with this flowing through to their equity markets. These markets are more reliant on manufacturing with the United States being a key export market.
Chart 1 - Investor Quick To Price In Winners and Losers
Market-Friendly Policies Expected from the U.S. Election 2024
With a focus on "America First," the incoming Trump administration is anticipated to introduce a range of market-friendly policies. These changes could benefit U.S. equities and key sectors like banking and energy.
We expect Trump will put forward a market-friendly, populist, and ‘America first’ economic agenda. This will likely promote American manufacturing, energy, and re-shoring while cutting taxes and regulations for domestic businesses. These will be well received by the market, especially any reduction in corporate tax with a 15% rate being a likely target. We expect broad-based de-regulation from a Republican Congress, with beneficiaries likely within banks and energy companies for whom regulation is a significant cost. Republican control of both the House and Senate appears likely, so wish-list items are on the table, including a possible repeal of the Affordable Care Act, known as Obamacare. What might replace Obamacare is unclear, however, a sensible assumption would be a more market-friendly approach that could be looked upon favourably for pharmaceuticals and health insurers.
Impact of Potential Trump Tariffs on International Trade
Protectionist trade policies are a hallmark of Trump’s economic agenda. Proposed tariffs could reshape global trade dynamics, presenting both risks and opportunities.
Trump has been consistently in favour of tariffs since at least the 1970s. His first term featured implementation of protectionist policies notably against China but also Europe and other key trade partner nations. Therefore, we expect a more aggressive protectionist agenda, with Trump himself proposing a fairly extreme 10% tariff on all imports along with a punitive 60% on Chinese imports. This is a maximalist agenda for possible future negotiations. Importantly, Trump can likely implement tariffs without Congressional approval. Higher tariffs will have the effect of increasing inflation, higher interest rates and weaker economic growth. There could be retaliation on U.S. companies in the event of a trade war, possibly through tariffs or other punitive methods. Specific losers could be retailers, auto manufacturers or companies with a significant Chinese or Mexican supply chain.
U.S. Bond Yields and Fiscal Deficit Projections
Trump’s proposed fiscal policies are expected to increase the U.S. budget deficit, potentially driving bond yields higher. This could have wide-ranging effects on interest-rate-sensitive markets.
The Centre for Responsible Budget has projected Trump’s campaign promises would lead to a larger budget deficit of US$7.8 trillion cumulatively by 2035, with roughly US$5 trillion of that coming from extending and increasing the previous Trump tax cuts. This raises obvious questions about the sustainability of U.S. fiscal spending and will almost certainly put sustained upward pressure on U.S. bond yields which will have flow-on effects for other markets. We therefore expect that bond yields, while already having responded to the immediate news, will continue to move higher. We see a 5% rate on the U.S. 10-year government bond as coming into view as a possible near-term target. Without spending cuts to offset the promised tax cuts, we see the return of ‘bond vigilantes’ as a force in the market – these investors typically sell bonds and force up bond yields to push back against irresponsible fiscal policies. At a certain point, equities will begin to be impacted by higher rates, starting with those sectors that are highly sensitive to interest rates, including property, utilities and other longer-duration sectors.
Chart 1 - Fiscal Impact of Harris & Trump Campaign Plans (2026-2035)
Market Winners and Losers Post-Election
The election outcomes suggest potential winners in U.S. equities, while other asset classes may face headwinds under the new policy regime.
Trump’s ‘red sweep’ means we are incrementally more positive on equities. U.S. equities represent the most attractive market globally, with better prospects for earnings growth and a strong economy. Trump tax cuts will drop directly to the bottom line for U.S. corporates which will further bolster U.S. earnings. Confidence should rebound for both corporates and investors, potentially resulting in more deal-making (M&A, IPOs) which would benefit private equity funds looking for an exit. Hard assets, such as gold and bitcoin, also stand to benefit if inflationary pressures reignite, although this may take some time to play out. U.S. bond yields have already jumped higher due to a likely larger U.S. deficit. This will have a negative flow-on impact for ‘bond-proxies’ including property, infrastructure and defensive equities. Crucially, rising bond yields will eventually hit a level that upsets the equity rally. We also expect ex-U.S. equities will be out of favour as markets speculate on potential tariffs.
U.S. large and small caps
U.S. credit, U.S. dollar (in the short term)
gold
Private equity.
Losers:
Government bonds
Emerging Markets equities
European equities
Real assets such as property.
The 2024 U.S. election may bring potential shifts in global markets. Staying informed about fiscal and trade policy developments can help investors understand how these changes might influence broader market trends.
For personalised insights or to discuss how these developments may impact your investments, contact our team today. We’re here to help.
Explore the latest insights into the September quarter's global economic and market trends. This report comprehensively analyses the economic indicators shaping the investment landscape, helping you stay informed and make well-grounded financial decisions.
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