As the dust settles on the US presidential election, which saw Donald Trump win a clear victory against Kamala Harris, attention has rapidly turned to what this means for the market.
The quicker-than-expected outcome means that the uncertainty that had been hanging over Wall Street evaporated quickly. US stocks rose to record highs, but the VIX, which is considered the fear gauge for Wall Street, dropped 10%, and Gold fell 3%.
The Trump trade
Stocks surged not only because the uncertainty surrounding what was expected to be one of the tightest elections in history evaporated but also because Donald Trump is considered to be pro-business.
His win was big, giving him, in his own words, “an unprecedented and powerful mandate. ” The Republicans have taken the Senate and could win the House as well, although this is unconfirmed yet. This would result in a “Red sweep,” clearing the way for Trump to push through his expansive agenda, including corporation tax cuts, deregulation, and other business-friendly policies.
Sectors such as banking, energy, and automobiles performed well yesterday and could continue to do so. Meanwhile, Trump’s focus on America first could benefit industrials and Tesla.
Broadly speaking, seasonality remains positive into the end of the year, and this, combined with the positive run of U.S. economic data and corporate earnings momentum, could see indices enjoy a solid end to the year.
In the FX market, the US dollar index rose to a four-month high, tracking treasury yields northwards. Trump’s core policies surrounding taxes, tariffs, and immigration are considered to be inflationary. This means that the Federal Reserve may need to cut interest rates more gradually and with a slightly higher terminal rate, supporting the USD.
As a result of Trump’s victory, the market has pared down rate cut expectations for 2025, with 100 basis points worth of cuts through next year now expected.
Trade war risks
China
However, if Trump’s past presidency is anything to go by, there are risks that have the potential to increase volatility and hurt risk sentiment, particularly surrounding trade tariffs. During his election campaign, Trump pledged to impose 10% -20% tariffs on all imports and impose a 60% levy on all goods from China.
Trump’s approach could be similar to 2018’s and once again go hard on China before attempting to negotiate. Tariffs on China and a potential trade war could affect targeted industries and the Chinese stock market more broadly. Looking back to 2018, Chinese equities dropped 25% in the initial phase of the US-China trade war.
Europe
Trump’s trade tariffs target European imports and could have a major impact on sectors such as automotive and chemicals. According to the European Commission, the European Union exported €502.3 billion in goods to the US in 2023, accounting for 20% of its non-EU exports.
Trade tariffs on Europe could impact the region’s already fragile growth picture. While European markets push higher, those gains could be limited or potentially reversed if growth in Europe is affected.
EUR/USD fell 2% on the day Trump was elected amid concerns over future tariffs and expectations that the ECB may cut rates at a faster pace than the Fed going forward. Should this start to play out, the euro could struggle to rise much further.
How to trade the post-election moves with PXBT
The US elections have already sparked big moves across the financial markets, and Trump’s policies will create more volatility in the coming weeks and months. How the markets move will depend on what policies Trump implements and whether he applies trade tariffs. Traders can capitalise on these moves by trading markets linked to the US elections.
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