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Trump’s return to the White House signals more years of policies aimed at strengthening domestic industry, deregulation, and protectionism. The dollar is expected to continue strengthening, which could harm U.S. export revenues but encourage investments in domestic companies, particularly in banking, energy, and technology sectors.[1] On the other hand, emerging markets will likely face higher tariff pressures and lower demand, increasing their volatility.
Immediate Market Response Was Generally Positive
Shortly after Trump’s victory seemed assured, markets responded positively, as seen in U.S. futures contracts with December delivery for major stock indices like the Dow Jones, S&P 500, and Nasdaq 100.* The election results also caused an increase in U.S. government bond yields*, as it is expected that Trump will implement his policy of lower taxes and increased government spending on defence and infrastructure, potentially deepening the budget deficit. Investors also anticipate higher inflation and increased demand for riskier assets. The Republicans’ significant dominance in both Congress and the Senate increases the likelihood of Trump's proposed changes succeeding, which significantly reduces overall market uncertainty, even though the impact of the election results will vary long-term depending on the sector.
The development of the 10-year U.S. Treasury bond yields over the last 5 years:*
https://www.investing.com/rates-bonds/u.s.-10-year-bond-yield
Source: Investing.com*
Biggest One-Day U.S. Dollar Surge in Years
On the night of the U.S. election, when results began tipping in Trump’s favor, the U.S. dollar recorded its largest one-day gain against other major currencies since March 2020. The increase was especially visible on the U.S. Dollar Index, which measures the strength of the dollar against several currencies, including the euro, Japanese yen, and British pound.* Trump’s tariffs and tougher trade policies could destabilize emerging markets like China and Mexico, which plays in favor of the dollar. Trump's victory is likely to result in continued trade tensions and a more volatile environment for currencies tied to trade with the U.S.[2]
Source: Investing.com*
The European and Chinese markets do not share American optimism
The results of the U.S. elections could bring risks to European industry in the form of the announced tariffs on imports to the U.S. This was reflected in the performance of the European stock index STOXX 600.* Despite a short-term increase after Trump’s victory became clear, the trading day ended in a decline. The biggest losses were seen in shares of renewable energy companies, such as wind farm operator Vestas Wind Systems, which can be attributed to the future U.S. president's negative stance on the development of wind farms.* A positive market reaction is also unlikely for China. The prospect of expanding tariffs and a trade war led to a drop in the Shanghai Shenzhen and Hang Seng China Enterprise indexes.*
Stock Performance of Vestas Wind Systems Over the Last 5 Years:*
https://www.investing.com/equities/vestas-wind
Source: Investing.com*
What to Expect Moving Forward?
The U.S. stock market response suggests that the outlook for smaller market regulations and lower tax burdens is good news for future returns. However, Trump is primarily known for supporting established conservative practices and technologies, which is positive for large, long-established corporations, including energy companies relying on fossil fuels and various industrial manufacturers. On the other hand, emerging technologies, startups, and artificial intelligence may face multiple setbacks. Additionally, planned import tariffs could ultimately harm the domestic economy and jeopardize long-term growth.
David Matulay, analyst of InvestingFox
* Historical data is not a guarantee of future performance.
[1], [2] Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on current economic conditions that may change. These statements are not guarantees of future performance. Forward-looking statements by their nature involve risk and uncertainty because they relate to future events and circumstances that cannot be predicted and actual developments and results may differ materially from those expressed or implied by any forward-looking statements.
Caution! This marketing material is not and should not be construed as investment advice. Historical data is not a guarantee of future performance. Investing in foreign currencies may affect returns due to fluctuations. All securities transactions may result in both profits and losses. Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on current economic conditions that may change. These statements are not guarantees of future performance. InvestingFox is a trademark of CAPITAL MARKETS, o.c.p., a.s. regulated by the National Bank of Slovakia.
Sources:
https://www.investing.com/news/economy-news/chinas-markets-drop-as-trump-presidency-looms-3704283
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