Trump's Return: What It Means for the Markets
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Welcome to the first edition of The Global Investor!
We’re here to help you make sense of the complexities of global markets. Our mission? To break down the forces shaping the world’s economies and investment landscapes. From emerging trends and key players to actionable insights, we aim to help you stay ahead of the curve in this ever-evolving financial world.
Now, let’s talk about the headline-grabbing everyone’s attention—Donald Trump is back.
Yes, the businessman-turned-politician, known for his bold and unconventional moves, has returned to the presidency. And with his comeback comes renewed chatter about the so-called “Trump Trade.”
But wait—what exactly is the Trump Trade, and why does it matter to you?
Back in his first term, Trump’s policies sent shockwaves through markets. Tax reforms boosted corporate profits, trade wars kept global investors on edge, and his America First stance reshaped industries. Fast forward to today, and we’re once again watching as his influence ripples across everything—from stock markets and bond yields to the rise of alternative assets like cryptocurrencies.Investors everywhere are asking: What does his win mean for me?
That’s what we’ll explore in today’s deep dive.?
The Trump Trade: A Quick Refresher
The term “Trump Trade” gained prominence during his first term as President. It refers to the market dynamics that arose from his policies — especially his emphasis on tax cuts, deregulation, and protectionism. These policies created significant winners and losers in the market, shaping the economy in ways that continue to influence investment strategies today.
When Trump first took office in 2017, the market saw a sharp uptick in the stock prices of certain sectors. U.S. equities soared as investors bet on pro-business policies, tax cuts, and reduced regulatory constraints. On the flip side, sectors like renewable energy, global tech, and clean energy faced tougher times due to trade wars and protectionist measures. This market behaviour was dubbed the "Trump Trade."
But with his return to power in 2024, the big question is: How will markets be in 2024 under Trump?
What Will the Trump Trade Look Like in 2024?
Donald Trump has been re-elected as the President of the United States, securing 270 electoral votes. The Republican Party has regained control of the Senate and is likely to maintain a majority in the House of Representatives, giving Trump a strong mandate to push through his economic agenda. For investors, this means we could see a return of the key policies that defined his first term.
1. Tax Cuts and Corporate Profits
One of the hallmark policies of Trump’s first term was the Tax Cuts and Jobs Act of 2017, which slashed the corporate tax rate from 35% to 21%. This tax cut provided a significant boost to U.S. corporations, leading to higher earnings, stock buybacks, and increased dividends. For investors, the immediate impact was clear: Wall Street cheered, and stocks, particularly in tech and energy, surged.
With Trump’s second term now underway, the potential for further corporate tax cuts looms large. This could provide another boost to U.S. companies, especially those in sectors like banking, oil & gas, defense, and pharmaceuticals. However, there’s a catch — these tax cuts could widen the fiscal deficit, which could ultimately lead to inflationary pressures in the economy.
2. Deregulation: A Boon for Businesses
Deregulation is another cornerstone of Trump’s economic agenda. During his first term, he rolled back environmental and financial regulations, making it easier for businesses to operate and lowering their operational costs. For sectors like finance, energy, and healthcare, deregulation was a clear win.
Trump’s second term promises to continue this trend. Financial institutions are likely to see fewer restrictions, which should support profit growth, particularly in the banking sector. Additionally, energy companies, particularly those in fossil fuels, are likely to benefit from the rollback of environmental regulations, which could boost oil and gas production.
3. Protectionist Trade Policies: Winners and Losers
Trump’s protectionist stance, epitomized by his “America First” agenda, led to a turbulent period for global trade. His administration’s tariffs on Chinese imports sparked a trade war that had far-reaching consequences. While certain U.S.-based industries, particularly in manufacturing, saw benefits from reduced competition, sectors like agriculture and global supply chains took a hit.
As Trump prepares to return to office, his protectionist policies could once again affect global markets. While the tariffs may still benefit certain domestic industries, they could strain trade relationships and increase costs for U.S. consumers.
During the 2018 trade war, Chinese stocks lost a staggering $21.1 billion in a single week due to Trump’s tariffs, with U.S. exports to China declining by $2.7 billion in the first half of 2019 alone.
How Trump’s Policies Could Shape the Market
Equities: Bullish Outlook for US Stocks
Trump’s economic policies were immediately reflected in the US equity markets. His second term could mean a continuation of the pro-business stance: lower taxes, fewer regulations, and a generally favorable environment for corporations. This is expected to boost US corporate profits, particularly in sectors like banking, oil & gas, defense, and pharmaceuticals.
Small-cap stocks, which tend to benefit from domestic growth, could also see gains. In the medium term, cyclical sectors like industrials and quality mid-caps are likely to do well, as the US economy continues to grow. With expectations of a pro-business environment, equities seem poised for a bullish run.
Trump’s promise of tax cuts, deregulation, and an economy revitalized by his “America First” policies pushed stock prices to new heights. Large-cap stocks in the U.S. saw a staggering $44.1 billion in inflows during the week after his election win—the biggest weekly inflow ever. The anticipation of lower corporate taxes, fewer regulations, and the potential for a booming economy sparked a bullish sentiment across equity markets.
Bank stocks, in particular, benefitted from expectations of higher profits amid lighter regulations. Financial funds saw inflows of $2.6 billion—the largest in over two years. The markets bet big on the prospects of deregulation, higher growth, and stronger corporate earnings.
2. Losers:
What’s Different This Time?
While the core principles of the Trump Trade may remain intact, the economic context is notably different in 2024. The U.S. economy is grappling with persistent inflation and rising interest rates, which could make tax cuts and fiscal stimulus more difficult to implement. Additionally, the ballooning U.S. debt could limit Trump’s ability to pursue the same expansive fiscal policies he did in his first term.
On the global stage, unresolved supply chain disruptions and the aftermath of the COVID-19 pandemic could complicate trade relations. If Trump’s policies reignite trade tensions, sectors dependent on international trade may face even more challenges.
The Debt Dilemma: Can the Economy Handle More Borrowing?
Another key issue that emerged during Trump’s first term was the growing U.S. national debt. Despite the tax cuts, the U.S. ran a trillion-dollar deficit, even before the pandemic. As of now, the debt has crossed $33 trillion, and the situation is unlikely to improve without significant policy changes.
If Trump is re-elected, he’s likely to continue pursuing policies that increase government borrowing, whether through tax cuts or increased spending on defense and infrastructure projects. However, this raises concerns about inflation and the potential for rising interest rates. Higher debt levels can lead to inflationary pressures, which in turn could prompt the Federal Reserve to raise rates.
Higher interest rates would make borrowing more expensive, affecting industries that rely on cheap credit, such as real estate and technology. The higher cost of borrowing could also stifle consumer spending, which may slow down overall economic growth. Investors should be aware that the long-term risks associated with rising debt could outweigh the short-term benefits of tax cuts and deregulation.
Bond Markets: The Other Side of the Coin
As Trump’s policies raise the specter of higher inflation, bond yields have already started to climb. The 10-year U.S. Treasury yield spiked to 4.46% in the wake of his election victory. With the prospect of higher deficits, investors are pricing in the possibility of rising rates, which makes long-duration bonds less attractive.
For emerging markets, the rising U.S. bond yields could put pressure on currencies and capital flows. Countries reliant on U.S. capital may face higher borrowing costs, adding another layer of uncertainty for global markets.
The Dollar and Gold: Competing Forces
In the wake of Trump’s victory, the U.S. dollar strengthened as investors anticipated an economic boom. A stronger dollar typically signals confidence in the U.S. economy. However, this also spells trouble for traditional safe-haven assets like gold, which saw significant outflows following the election.
On the flip side, the cryptocurrency market experienced a massive surge, with Bitcoin skyrocketing from $5,000 to over $90,000 as investors speculated that Trump’s administration would be crypto-friendly. This dramatic rise highlighted a growing interest in alternative assets as a hedge against inflation.
The impact on Chinese and Global markets
The global ripple effect of Trump’s policies was also felt in foreign markets. China, a key player in global trade, saw significant outflows. Investors were concerned that Trump’s protectionist trade policies would lead to more tariffs and trade wars, particularly with China. As a result, Chinese stocks experienced their biggest weekly outflow in over five months, losing a staggering $21.1 billion.
This outflow underscores the global reach of U.S. policy decisions. Emerging markets, especially those tied to China’s economic success, saw capital flee in anticipation of escalating trade tensions and tightening liquidity. On the other hand, U.S. markets saw a massive influx, with investors betting on Trump’s ability to drive corporate profits through deregulation and tax cuts.
Conclusion: What to Expect Going Forward
With Donald Trump returning to the White House, we can expect a resurgence of the Trump Trade — but with a few caveats. Sectors like technology, energy, and finance are likely to benefit, while manufacturing and agriculture might face continued challenges. The global supply chain issues, inflationary pressures, and fiscal deficits will all play pivotal roles in determining how the markets react.
Investors should prepare for short-term volatility, but long-term strategies focused on sectors aligned with Trump’s policies could still yield positive results. As always, it’s important to stay informed and adjust your investment strategies to the changing landscape.
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