In the near term, equity markets will most likely rally. The party has already started in Tokyo, where the Nikkei 225 ended up 2.6% on the day, and I expect plenty of capital which has been sidelined in recent months to find its way back into equities between now and Inauguration Day (20 January 2025).

That said, national debt is likely to rise fast under Trump, which could turn many bond investors against him. Even worse, if Trump goes ahead with his plans to raise import tariffs as dramatically as he has said he will, both GDP and inflation will be negatively affected. As investors won’t like stagflation-like conditions, the party could be short-lived.

Worst of all, Trump’s plan to deport all unauthorized immigrants, if enacted, will have a severe impact on GDP growth – something at the order -8% or thereabout. We actually don’t think all illegal immigrants will ever be deported but less will also hurt the economy quite badly.

In summary, we think the US equity market will continue to outperform equity markets elsewhere in the near term. However, as time goes by, the penny will begin to drop on investors that Trump’s policy programme is actually quite bad for both bonds and equities. Two caveats:

1. Will Trump ever go as far as he has said he will? Most likely not; however, should the Republicans also end up with a majority in the House (they have already taken control of the Senate), you should expect a more aggressive Trump.

2. Timing? This is a hard one. In our opinion, you shouldn’t expect much from the new administration the first few months. In other words, until about Easter time, US equities are probably a safe bet but, again, much depends on whether the Republicans also take control of the House.

Niels Jensen

6 November 2024