Market Update: The Good, Bad and Ugly of Trump’s Return

While initial enthusiasm surrounding Trump’s likely market-friendly economic policies drove the S&P 500 index above 6,000 points for the first time, investors are now carefully weighing the opportunities and risks ahead. South Africa’s JSE All Share Index fell behind, moving sideways during the month.

Treasury pick calms some market nerves

Markets generally welcomed Trump's selection of hedge fund manager Scott Bessent as Treasury secretary – one of the few moderate Cabinet nominees. He’s expected to have a moderating influence on some of Trump's more extreme economic policies and is regarded as a "safe pair of hands" by strategists.

Bessent is expected to advocate for:

• A softer, more gradual approach to implementing tariffs
• Regulatory reform to boost growth
• A "3-3-3" strategy aiming for 3% economic growth, a reduction in the US budget deficit to 3% of GDP and increasing oil production by 3 million barrels a day.

The positive reaction to Bessent's nomination was evident in currency markets, with the dollar index declining 0.8%.

Key policy concerns

Significant uncertainties remain around several aspects of Trump's economic agenda. All of these have the potential to impact both the global economy and the South African one.

• Trump’s tariff plans:?Trump's proposed blanket 20% tariff on imports, possibly climbing to 60% on Chinese goods, remains a major concern. While Bessent supports tariffs as a policy tool, his preference for a "layered" approach may help moderate their inflationary impact.
• US government debt challenges:?The debt service burden presents a significant hurdle for Trump's tax cut plans. With annual debt service costs projected to exceed $1 trillion next year (surpassing defence spending) the administration faces tough choices in balancing growth initiatives with fiscal responsibility.
• US monetary policy: The relationship between the Trump administration and the Federal Reserve will be closely watched, particularly as the central bank navigates potential inflation pressures from tariffs and fiscal policy.

Implications for SA markets

South African financial markets face both opportunities and challenges in this environment:

• Near-term volatility:?The SA market has already shown sensitivity to US policy uncertainty, with the JSE All Share Index underperforming the S&P 500's November gains.
• Rate cut trajectory:?Despite SA inflation falling to 2.8% in October 2024 (its lowest level since June 2020) the SARB may be cautious about further rate cuts if US policies fuel global inflation pressures.

Investment outlook

Markets are likely entering a period of increased volatility as Trump's policy agenda takes shape. While Bessent's appointment as Treasury secretary provides some reassurance, investors should prepare for:

1. Potential inflation pressures from trade policies
2. Higher bond yields as markets price in fiscal risks
3. Currency volatility, particularly in emerging markets
4. Sector rotation (changes in which sectors of the economy are performing well) as policy priorities become clearer.

Bottom line

South African investors should remain patient and level-headed while Trump beds down his Cabinet and economic policies and the market transitions to a new reality.

Copyrights: FinDotNews