A US Election Update

Key Points:

• President Trump has convincingly won the 2024 US election.
• It is too early to tell if this victory constitutes a Red Sweep, Republicans will control the Senate (though not able to prevent a filibuster), but the House is still undecided.
• The impact on markets will depend on what areas of policy are enacted. Tax cuts and deregulation will support equity markets. Tariffs, lower immigration and increased geopolitical instability will hurt.
• We think regardless of the policy mix, the outlook for bonds is poor given prospects for greater deficits and more inflation.

Despite concerns there could be long delays in vote counting or allegations of electoral fraud, the 2024 US election passed very smoothly. Trump has won convincingly, taking both the popular vote and the electoral college. Republicans will hold a majority in the Senate, but this will be slim enough that Democrats have a reasonable chance at stymieing proposed changes in legislation. The House remains undecided.

                                                      Source: AP

Assuming the Republicans take the House (and can therefore, enact their agenda to the greatest degree,) we think the equity market impact will be mixed. As we highlighted in our September 2024 Market Update, generally there is a very wide gap between the policy proposals of a campaign platform and what is legislated. Even with a complete Republican control of the Senate and House in 2016, President Trump was unable to fully enact his agenda. Congresspeople in the US are not obligated to tow the party line like in Australia and they often vote against their party platforms.

Regardless, we can summarise the platform and categorise it into pro and anti-market items:

                                    Source: Drummond Capital Partners

Overall, we see the policy platform (if fully implemented) roughly neutral for equities, but bad for bonds. Importantly, there is a feedback loop between bonds and equities which needs to be considered. If an increase in yields is too large or too fast like 2022, equity markets will react negatively. This is something that we will be watching carefully for. Equity markets have so far reacted positively to the election result, likely expecting that it will be easier for Trump to legislate tax cuts and deregulation through a Republican controlled Congress than enacting higher tariffs (which will upset much of the business community). However, if he walks away from a tax cut agenda equity markets could easily swing the other way.

Portfolio positioning

Growth asset exposure in our portfolios remains neutral with a large core position in US equities which have risen strongly following the result. The portfolios also remain strongly underweight government bonds. President Trump won’t be inaugurated until 20 January next year, following which the work will begin to make legislative changes. Nothing happens quickly in Government, so there should be time to listen to policy proposals and position the portfolios accordingly if changes are necessary.