Post-Election 2024 - What Trump’s Win Means for Financial Markets
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As the U.S. presidential election concludes with Donald Trump’s victory, the financial world turns its gaze toward how markets may react to this outcome. With potential shifts in fiscal policies, taxes, regulation, and trade, we have a lot to consider. Here, we’ll outline the key insights, drawing from recent market analyses and historical patterns, and what we can likely expect for financial markets in 2024 and beyond.
1. Market Trends in Election Years: Patterns to Note
Historically, markets tend to rise during election years. According to Steve Lowe , Chief Investment Strategist at Thrivent Asset Management , “Markets historically rise in election years despite an unknown future… For example, the S&P 500 Index rose in 18 out of the last 24 presidential election years.” This pattern suggests that markets are resilient to political shifts, though they may experience some short-term volatility as new policies are introduced.
For long-term investors, this historical trend points to potential stability even as policies change. Lowe emphasizes a balanced approach, saying, “To put it concisely, stay invested and stay tuned.”
2. Tax Policy: Favoring Growth in Key Sectors
A cornerstone of Trump’s platform is a business-friendly tax approach. He has championed a reduction in corporate taxes, aiming to lower the corporate tax rate to 20% while reintroducing full expensing for capital investments. Jeff Schulze , Head of Economic and Market Strategy at ClearBridge Investments , explained the potential impact:
“A Republican sweep…is probably the most market-friendly outcome from a tax perspective. You’re going to have favorable tax treatment, which will benefit technology, industrials, and manufacturing.”
Lower taxes often lead to increased corporate profits, which could boost stock prices, particularly in U.S.-based sectors that stand to benefit from reinvested earnings.
Tom Kozlik from Hilltop Securities pointed to the value of municipal bonds in scenarios where tax policies favor their tax-exempt status. He explained,
“If federal taxes are higher…then that very well could increase the value of municipal bonds because the tax shelter will be even more valuable than it is today.”
This insight aligns with Trump’s potential tax policies, which may continue to make municipal bonds attractive for tax-sensitive investors.
Such moves could foster investment in technology, manufacturing, and other capital-intensive sectors. Furthermore, Trump’s stance on extending provisions from the 2017 Tax Cuts and Jobs Act (TCJA) could prevent a significant tax hike for corporations and individuals alike.
For financial professionals, this focus on lower corporate taxes points to potential growth in equities, especially for U.S.-based firms.
3. Regulation: Lighter Touch in Energy and Financial Services
Trump’s regulatory agenda suggests a continued trend of easing restrictions, particularly in energy, financial services, and healthcare. For instance, the energy sector, which struggled under more stringent environmental regulations, may see an upturn with a pro-energy stance that emphasizes domestic production. Schulze notes,
“Trump significantly dialed back regulation in his first term...we think most of Trump’s efforts on the deregulation front are likely going to be continued as we look to a potential second term, going to be focused on labor, education, the environment, and healthcare.”
This easing may benefit sectors like energy and healthcare, while other industries, particularly those reliant on immigration, could see staffing constraints due to anticipated changes in immigration policy.
However, it’s essential to note that lighter regulation in certain industries could also lead to shifts in labor-intensive sectors due to potential restrictions on immigration, which may affect staffing costs and availability. This could impact sectors such as hospitality and retail, which rely heavily on a steady labor supply.
4. Trade Policy and International Markets: A Return to Protectionism
Trump’s re-election is likely to mean a continuation of his previous protectionist trade stance, with policies designed to support American industries. Schulze explains,
“From a Trump perspective, this is going to be a repeat of what we saw under his first term...He’s talked about imposing two different types of tariffs: a 10% across-the-board tariff on all imported goods to the U.S., and increasing Chinese tariffs to 60%.”
While this approach could support domestic manufacturing, it may also introduce inflationary pressures, potentially impacting prices across various sectors. Yet, some markets—like Vietnam, Mexico, and India—may gain from redirected supply chains as companies seek alternatives to Chinese imports. For investors, this global repositioning presents an opportunity to explore diversified international markets that stand to benefit from trade adjustments.
5. Federal Spending and Infrastructure Investment
Despite the rhetoric surrounding fiscal conservatism, the spending trajectory under both administrations has been substantial. Trump’s spending priorities, particularly on defense and infrastructure, signal continued economic support. Schulze points out,
“Neither candidate wants to really rein in spending. You’re going to have deficits in the 6–7% of GDP range for the foreseeable future… Trump’s spending would focus on defense and infrastructure.”
Increased spending in these areas can drive economic activity, supporting growth sectors and benefiting CapEx-heavy industries like defense and technology.
Adapting to Opportunity Amid Change
As markets react to Trump’s win, investors should focus on strategic moves that align with emerging policies.
Here are some practical takeaways:
Ultimately, as Schulze observes, “Markets have gone up under Republican presidents, markets have gone up under Democratic presidents...The economic momentum is generally the most important driver of equities.” By focusing on economic fundamentals and long-term trends, young finance professionals can position themselves to thrive regardless of political changes.
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