US election: What does Trump's victory mean for markets?

At a glance:

• Donald Trump’s policy promises, such as increased tariffs, could raise inflation in the US, while the longer-term impact on China may be more nuanced.

• We expect to see short-term market volatility, both up and down, but we do not act on speculation. We remain anchored to our long-term investment views.

• Avoiding a knee-jerk or emotional response after such a divisive election is essential.

After a close-fought race, Donald Trump is poised to become the 47th President of the United States. Looking at Trump’s campaign promises and actions during his last presidency in 2017, expectations are for reduced regulations across the board. Additionally, expectations are that 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 divisive. With so much noise, it is bound to amplify feelings of uncertainty. It is best practice to remain focused on delivering long-term investment outcomes. Making bold calls in the future based on a single event can lead to poor decisions.

Role of Congress

When discussing presidential elections, it is also worth considering the roles the Senate and the House of Representatives (combined, known as Congress) play in US politics.

American politics is built on a system of checks and balances, so control of these two branches of government is vital to the policies a new government can introduce.

When he was the 45th president, Trump made substantial use of executive orders, which do not necessarily need approval by Congress. Such orders by US presidents have historically related to routine administrative matters. More recently, they have been used for more significant policy changes. Trump signed 220 executive orders between 2017 and 2021, compared to 277 executive orders signed by President Barack Obama between 2009 and 20171.

Additionally, the US holds mid-term elections in 2027, so the composition of Congress may change again soon.

Potential inflation in the US

Trump last came to office in 2017, during prolonged low inflation. This is quite different today. In 2021 and 2022, inflation soared to 1980s levels and peaked at around 9%2. It has since come down. By October 2024, US inflation was close to the Federal Reserve’s (the Fed) 2% target. Still, it is being closely—and warily—watched.

In 2017, Trump used tariffs in international negotiations to try to restore manufacturing to the US. Given his campaign messaging, more tariffs appear likely. Tariffs can be inflationary, as companies tend to pass on costs through price increases.

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

Fixed income

There is potential for higher short-term volatility in bond markets after the election. This is particularly likely around US Treasuries as sentiment adjusts to the result.

Higher inflation may also cause yields for long-term bonds to rise higher than short-term bonds (a steepening curve).

As the US remains the benchmark for global fixed income, the broader global bond market may feel the ripple effects. The St. James’s Place team continues to monitor these markets carefully and adjust positioning should there be a material change in the outlook and opportunity set.

US equities

Given Trump’s focus on international negotiations, sectors tied to global trade – notably tech and consumer goods – may experience more volatility. On the other hand, the president-elect’s emphasis on deregulation and corporate tax cuts may well give short-term boosts to industries like traditional energy, financials, and defence.

Smaller US companies could be more affected by post-election volatility. However, this is a short-term concern. We believe the valuation case for smaller companies globally is currently strong. We also remain confident that our approach of sound diversification regionally, with a small underweight position in the US that is largely driven by valuation considerations, helps to steer our clients well through short-term uncertainties, reduce concentration risk, and capture what might be overlooked opportunities globally, including less popular markets.

China

Given the threat of higher tariffs, investors in Asia may be particularly concerned about the Chinese market now. However, from China’s perspective, only 15% of exports went to the US in 2023, amidst several years of de-globalisation and a push to remove US dependencies. The Trump victory is likely to prompt China to further expand its influence in the global south, Europe, and Northeast Asian countries as US alliances fray.

While manufacturing, housing, and services all showed signs of stabilisation in October against the backdrop of China’s stimulus measures being rolled out, we still observe valuations, particularly those of Hong Kong-listed Chinese firms, as amongst the lowest in Asia and globally.

Managing risks

Elections, particularly ones as contentious as this, can stir up emotions and short-term market volatility. However, we expect the real long-term impacts to come through as policies get implemented. History has shown that making significant adjustments based on political events is unwise. Market volatility is often based on speculation and not any change to fundamentals.

At times of heightened uncertainty, it is essential to remain faithful to our investment principles and process. While elections may create temporary volatility—both up and down—we believe remaining disciplined and building a diversified portfolio across global markets, asset classes, and managers’ styles is the most effective means of delivering long-term value. It is important to remember that the main risk from market events is the poor decisions we can make when they occur rather than the ramifications of the events themselves.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The information provided does not constitute investment advice. It is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Full advice should be taken to evaluate the risks, consequences and suitability of any prospective investment. Opinions provided are subject to change in the future as changes may influence them in regulation or market conditions.

If you’d like to talk to a financial advisor about your financial position, please get in touch with David Gardner from St. James’s Place Asia and the Middle East.

Source

1 Federal Register, data accessed 05/11/2024

2 US Bureau of Labor Statistics, data accessed 05/11/2024

3 CIA, data accessed 05/11/2024

St. James’s Place Website 6/11/2024

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