Donald Trump has won the 2024 U.S. presidential election, making an astonishing comeback to become the 47th president. At this point, it seems the Republicans have secured victory in all nine swing states and the popular vote, something not accomplished since Reagan in 1984.
Markets have already factored in the potential impact of a Trump victory, as shares have rallied strongly. The S&P 500 Index, Dow Jones Industrial Average and NASDAQ all saw gains between 2% and 4% in the first full day of trading, while the Russell 2000, a gauge of US small caps, rose by nearly 6%.
US Interest Rates
Ultimately, we expect the primary effect of a Trump presidency to be higher U.S. interest rates, which would likely lead to a stronger U.S. dollar. Economists forecast that Trump’s campaign promises will lead to nearly $15 trillion USD in deficits over the next decade. If the predicted deficits were to come to fruition, we could see rates increase as markets adjust for the higher risk premiums associated with U.S. Treasuries. The U.S. 10-year yield is approaching 4.5%, up from a multi-year low of 3.6% in mid-September.
US Share Market
Higher spending and corporate tax cuts could provide a slight boost to earnings for U.S. shares, especially those in the oil and gas sector, as well as producers of goods that may benefit from the trade wars Trump has threatened to ignite. Higher inflation, and conversely higher interest rates may negatively impact highly leveraged sectors like property and infrastructure.
Australia
If Trump were to impose sweeping tariffs on Chinese exports to the United States, it could slow down the pace of Chinese growth. Given Australia’s strong trade ties with China, a weakening Chinese economy would likely have a negative impact on Australian shares. Poor growth in Australia would likely prompt the RBA to lower interest rates in an effort to stimulate the economy. The current forecasts do not anticipate any rate cuts until mid-2025. However, if rate cuts occur earlier than forecast, it will be beneficial for Australian Bond returns.
