Trump 2.0 winners and losers

From Challenger Chief Economist Dr Jonathan Kearns

Winners, losers, and surprises in asset markets on US election day provide an insight into the market’s assessment of the policies and implications under a Trump Presidency. The price of Bitcoin jumped 10%, almost four times it’s daily standard deviation, as Trump has embraced cryptocurrencies and several strong crypto supporters were elected to Congress. In contrast, the gold price, which had also been seen as part of the Trump trade, surprisingly fell.

The S&P 500 was up 2.5% on the day as the market anticipated US Government stimulus will boost the economy. The Russell 2000, which includes more smaller stocks, was up 5.8% demonstrating the higher return on higher risk stocks. Traditional energy stocks were big winners, significantly outperforming the S&P 500, while clean energy stocks experienced a large fall, reflecting the anticipated rollback of President Biden’s measures to reduce fossil fuel use and greenhouse gas emissions.

One of the biggest winners was Tesla, whose price surged almost 15%, significantly outperforming the other Magnificent Seven stocks which only increased in line with the broader market. Clearly markets anticipate Tesla will do well out of tariff protection for US car makers, and Elon Musk’s currently strong relationship with President Trump.

But with anticipated strong fiscal stimulus and tariffs, inflation was a big loser on the day. US inflation swaps jumped, with the 2-year swap indicating inflation is expected to be 0.2% higher over the next two years.

And with higher inflation and more Government debt on the horizon, US Government bond yields also jumped on the day. Yield increases for longer term bonds, which are typically less volatile, were larger on election day. The US Government is seen as having an ‘exorbitant privilege’ in being able to borrow at low yields despite its fiscal and debt position. That privilege seems to have been wound back just a little with the greater increase in long yields suggesting the market was adding a larger risk premium to US Government debt.