WHAT DOES THE TRUMP WIN MEAN FOR EQUITY MARKETS?

25.11.2024 The extent of the Trump victory in the US presidential election took many by surprise. Below we look at the outlook for equity markets.

Trump won a landslide victory in the US Presidential election (as measured by the electoral college). The Republicans also gained control of Congress as they have majorities in both the Senate and the House of Representatives. So, this will make it easier for Trump to implement his agenda of tariffs, tax cuts and anti-immigration rhetoric.

On tax cuts the US deficit is already around 7% and the debt to GDP ratio is 120 percent. Generally, a debt to GDP ratio of over 100 percent is considered high. So, the current fiscal situation gives the new Trump administration limited room for manoeuvre.

Immigration in the United States is a complex issue. Illegal immigrants make up approximately 3% of the population. Nevertheless, they perform important roles within the American economy such as collecting the crops. A mass deportation of immigrants would undoubtedly raise food prices and could lower the output of the economy by as much as 5 percent. So, I would expect quite a bit of anti- immigration rhetoric but for the quantum of illegal immigrants to remain broadly unchanged.

Trump campaigned on a promise of a 10% universal tariff on all US imports and a discriminatory tariff of 60% on Chinese imports. Tariffs are easier to impose than some of Trump’s other pledges as the costs are less transparent. Also, there is a precedent for them as he imposed tariffs on China during his first term in office. It is certainly the case that a universal tariff protecting the world’s largest economy would have a major impact on global business confidence and trade flows. However, what is hard to discern is whether Trump’s tariff pledges are to be taken at face value or whether they should be seen as a negotiating tactic to get a better deal for American interests.

So, while Trump is relatively boxed in on immigration and tax cuts he has more room for manoeuvre on tariffs. Higher US tariffs would damage business confidence and negatively impact global equity markets. Until the question marks around tariffs are resolved European and Asian stock markets are likely to remain relatively muted.

For information only. Investors should seek professional advice for their own circumstances before making an investment.

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This post was written by Robin