News outlets are declaring a Trump victory with the Republicans capturing the Senate too. In markets, futures are rallying, and there are seemingly good expectations for the US economy with this outcome.
Having spent months fretting about a post-election market melt-down, US stock index futures soared, while volatility slumped, as Trump was declared the clear winner of the US Presidential Election within hours of the polls closing.
There was a mixed reaction across Asian Pacific markets. There was a thumping 2.6% gain for the Japanese Nikkei, while Chinese stock indices sold off. The latter was on uncertainty over what the new Trump presidency could mean for trade between the two countries. Trump has previously promised to raise existing tariffs and introduce new ones on Chinese imports.
European stock indices were dragged higher by the sharp overnight gains across US stock index futures. There was relief that there was a quick and undisputed election result, while the Trump victory was regarded as a big positive for US corporates due to his promises to slash taxes and tear up regulations.
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Bond investors are not Trump fans
The fact that President Trump hasn’t announced how he will pay for all this has gone largely unnoticed by equity traders. But the bond market has not taken it well. Yields have soared on fears that all this extra spending will widen the fiscal deficit quite dramatically, leading to another inflation outbreak.
The US dollar has soared overnight in reaction to the move in yields, and there have been outsized sell-offs in sterling, the euro and Japanese yen. In contrast, Bitcoin flew higher, briefly breaking above $75,000 to hit an all-time high, for an intra-day gain of close to 9%.
It also looks as if Republicans could get a clean sweep by winning majorities in both the Senate and House of Representatives. The Dow Jones Industrial Average was up well over 1,000 (2.9%) points for the first time since November 2022.
US stock indices had already posted a strongly positive session on Tuesday, making back most of the losses from the end of last week.
“It appeared that many traders were convinced that the polls were understating the positive momentum which showed up in Trump’s numbers over the last fortnight,” said David Morrison, a senior market analyst with Trade Nation. “But it’s worth pondering whether the strength of the stock market rally is due to Trump winning, or relief that there’s a clear and uncontested result. In truth, it’s probably a bit of both.”
However, there are a several points that traders should keep in mind; those vying for extreme market volatility [following the election outcome] will be very disappointed, and this is actually normal market behavior.
“What traders should be aware of is that historically, the volatility in the year after an election is higher, starting in January as the new President takes office and tries to enact their agenda,” said JJ Kinahan, CEO of IG Group North America.
What sectors will be winners under Trump?
Financials: Although some investors think that Trump could be bad for financials as he will use the Presidency to press for rate cuts, the flip side is that the regulatory environment will likely improve and give these organizations freedom from number of audits and fines as well as enable them to expand businesses. Winning stocks: JPM and Citigroup.
Crypto: In a related business, digital asset firms having a major opportunity here. President Trump has done a major reversal from his first term and has said that he wants the US to be the digital asset centre of the world. Winning stocks: Coinbase, PayPal.
Defense: Republicans have traditionally been good for defense stocks and Trump is seen as being extremely hawkish on protecting American interests – promoting “peace through strength”. This may be an area that will also be influenced by the makeup of Congress, but a clean sweep by Republicans would certainly send expectations here flying. Winning stocks: Boeing Co. becomes very interesting here, could this be the catalyst to turn the company around? Lockheed Martin Corp is also one to watch.
Energy: This is one that for many people becomes more obvious from the “drill baby drill” statements. The largest names should continue to do well as analyst see not only demand continuing but these companies able to become more efficient in what they do. The other, mostly overlooked sector that may benefit is coal producers, as US manufacturing is expected to increase. Winning stocks: Exxon Mobil Corp, ConocoPhillips, Peabody Energy Corp and Nucor Corp.
Technology: Many see the Trump administration as one that will be much more friendly to M&A as well as loosened regulatory pressure. As established firms are able to invest more easily in and buy other firms earlier in their life cycle, this should help keep the pipeline of new ideas and products coming through the pipeline. Winning stocks: Amazon, Google, Microsoft.
Renewable energy stocks could take a hit
Shares in companies like Ørsted, saw a 14% drop, and Vestas, is down 10%, as concerns grow that Trump could halt key renewable projects once he is back in the White House. Trump’s promise to stop offshore wind projects on ‘day one’ of his presidency has raised concerns among renewable energy companies, especially those heavily invested in the offshore wind market.
The market’s reaction is understandable, yet it overlooks the broader, global trend toward clean energy that continues to gain momentum, regardless of political cycles. Despite the potential for a temporary slowdown in some US-based projects, the long-term outlook for the renewable energy sector remains incredibly positive.
In the short term, the market reaction to Trump’s return to the presidency will likely be positive but volatile. However, further down the line, the inflation outlook could deteriorate significantly if he follows through on his promised tax cuts and economic policies. While a Harris victory would have posed its own inflationary risks, those would have stemmed from factors such as increased government spending and regulatory changes.
We’ve already seen some initial reactions in the currency markets following the news of a Trump presidency. While sterling is falling against the US dollar, the pound is appreciating against both the yen and the euro, suggesting that investors are positioning themselves based on expectations of potential trade disruptions.
Additionally, Trump says he has a preference for a weaker dollar, which would have profound implications for global trade and investment flows. Still, unlike economic policy, markets largely dictate currency moves and will be out of his control. Overall, the environment will likely become more contentious, and the gloves may come off in the ongoing trade wars.
