November 6, 2024
Former President Donald Trump’s victory in the 2024 presidential election is set to have significant implications across global financial markets. Our comprehensive analysis examines the potential impact across major asset classes.
Currency Markets
A Trump presidency is expected to strengthen the US dollar. Analysts project a potential 3% rally in the greenback, driven by expectations of higher inflation, economic growth, and the need for the Federal Reserve to maintain elevated interest rates to prevent overheating. This bullish outlook for the dollar is compounded by Trump’s protectionist trade policies, which are likely to depress growth in other parts of the world, further boosting the dollar’s allure.
The euro is expected to face downward pressure, potentially declining below the key $1.00 level, as tariffs and domestic tax cuts in the US weigh on the European economy. Similarly, China’s yuan is anticipated to slide further, continuing the trend seen during Trump’s previous term.
However, the Swiss franc may find support due to the country’s high-value exports and the currency’s tendency to outperform during periods of higher inflation. Additionally, the loosening of cryptocurrency regulation under a Trump administration could drive Bitcoin to new all-time highs.
Equity Markets
Trump’s policy agenda, including proposed corporate tax cuts and reduced regulation, is viewed as generally positive for US equities. Sectors expected to benefit include banking, technology, defense, and traditional energy. Conversely, multinational corporations with significant exposure to international markets may face headwinds from trade tensions and a stronger dollar.
Outside the US, European and Japanese markets could experience volatility, with the potential for high single-digit percentage declines in European earnings if trade conflicts reignite. The defense sector may have a mixed outlook, as Trump’s stated intention to end the Ukraine war could be offset by his calls for increased NATO spending.
Fixed Income
Investors are growing increasingly concerned about the scale of US government debt and fiscal deficits, which are expected to rise further under a Trump administration. His proposed spending plans could add $7.5 trillion to deficits over the next 10 years, far exceeding the projections for the previous administration.
This inflationary pressure, combined with the Fed’s need to maintain higher interest rates, is likely to keep Treasury yields elevated. Globally, the impact of a stronger dollar and higher US yields is expected to put upward pressure on yields in other major economies as well.
Commodities
Trump’s policies are anticipated to benefit the US energy sector, with expanded federal leasing and reduced environmental regulations expected to boost oil and gas production. However, his vow to ramp up enforcement of sanctions on Iran could also tighten global crude supply.
In the agricultural sector, tensions with China, the world’s largest soy importer, are likely to continue, putting downward pressure on soybean prices, which are already down 25% compared to a year ago.
Emerging Markets
Emerging economies are likely to face significant headwinds from a Trump presidency. The prospect of renewed trade tensions, particularly with Mexico, and the potential for a 10% tax on remittances could weigh heavily on currencies such as the Mexican peso and Brazilian real.
However, some emerging markets with strong domestic growth stories, such as India, or critical mineral exports, like Chile, may be better positioned to weather the volatility.
ESG and Sustainable Investing
A Trump victory could pose challenges for the sustainable investing landscape. His plans to roll back green regulations and review climate-focused spending could negatively impact clean energy, electric vehicle, and other environmentally-conscious sectors. Additionally, a potential change in leadership at the SEC could undermine efforts to press companies for policy changes on sustainability.
Investment Implications
Investors should consider positioning their portfolios to navigate the shifting landscape. Key steps include:
- Increasing US dollar exposure
- Reviewing emerging market allocations
- Evaluating sector positioning, particularly in financials, energy, and defense
- Monitoring trade policy developments and fiscal policy implementation
- Assessing currency exposure and potential hedging strategies
- Identifying opportunities in sectors aligned with Trump’s policy agenda
Note: This analysis is based on current projections and policy proposals. Implementation timeline and congressional support will be critical factors in determining actual market impact.
