Donald Trump’s victory in the 2024 U.S. presidential election has already stirred financial markets, with various sectors and asset classes responding to anticipated policy shifts based on campaign promises. 

Whilst such promises often go unfulfilled, markets are beginning to price in these potential changes until clarity on policy directions emerges.

In this article, immediate and potential market response will be explored, including the possible impact of specific asset classes. Additionally, the “tariff issue” will be discussed, before finally shining the economic light locally, where the potential impact on Australia will be examined.

 

Market responses across asset classes

Let’s explore some of these specific asset classes with some discussion about the potential influence on each.

 

1. Stock Markets 

The post-election surge across all U.S. stock indices, saw Dow Jones Industrial Average. Nasdaq and S&P500 hit record highs on the session subsequent to result confirmation. 

This reflects more than just optimism over deregulation and economic growth. The speed at which results cane across the wires and the potential threat of a repeat of the dramas of the 2020 post-election phase disappearing, gave certainty that is always preferred by market participants.

Of course, pre-election markets were already testing recent highs with some justification. Actual and anticipated interest rate cuts by Federal Reserve combined with satisfactory economic data, has led many to anticipate a “soft landing” scenario, so boosting investor confidence. 

This combined with better-than-expected corporate earnings in key sectors have provided the backbone for market resilience, along with the proliferation of AI (Artificial Intelligence) initiatives have all been contributory.

A definitive and early result has given rise to further moves higher. 

There are notable, more specific sector responses including: 

 

a. US Banking Sector:

Large institutions like JPMorgan Chase, Wells Fargo, and Bank of America, are anticipated to benefit directly from Trump’s policies. 

With a promise of reduced banking regulations, investors are hopeful that banks will see increased lending flexibility and expanded profit margins, as higher interest rates tend to improve net interest margins (NIMs). 

The expectation of fewer regulatory barriers might also encourage more aggressive growth strategies within the sector.

 

b. Energy Sector 

The anticipated shift back toward traditional energy sources aligns with the Trump administration’s “America First” energy policies. 

The “drill baby drill” narrative (on arguably the back of significant monetary support for Trumps campaign from “big oil”) seemed to be popular with rally attendees and was one of the most common policy statements made.

 These policies could impact:

• Increased Fossil Fuel Production: Support for projects in drilling, fracking, and pipeline expansion could drive higher production levels in the US and so even less dependency on imports and an increase in export potential.
• Reduced Environmental Restrictions: The rollback of regulatory constraints on fossil fuel extraction may significantly lower compliance costs for companies in this sector.
• Global Implications: Increased U.S. production could influence global oil prices, especially if OPEC countries adjust their own production to balance market supply.
• Renewable Energy Concerns: Decreased federal support may challenge the renewables sector’s growth, impacting not only domestic green companies but also potentially influencing global green investment trends, where the U.S. has previously been a major player.

c. Electric Vehicle (EV) Market

 EV companies like Tesla may find reduced competition as tariffs on Chinese imports potentially limit the influx of lower-cost EVs from China. Potential policy changes could involve:

• Increased Import Tariffs: These would raise the cost of imported EVs and components, possibly giving U.S. manufacturers a competitive edge.
• Subsidy Rollbacks: Federal incentives for EV adoption may be scaled back, potentially slowing the sector’s growth in the U.S.
• Elon Musk Factor: The relationship between Trump and Elon Musk, who has previously consulted with the administration, may offer Tesla unique opportunities or at least reduce regulatory barriers.

2. Cryptocurrencies

Bitcoin’s recent high of over $75,000 marks a substantial increase in value, attributed to market beliefs that the Trump administration may adopt a more lenient stance on cryptocurrency regulation. There is the potential for policies that may result in reduced government oversight, making the U.S. more attractive to crypto investors and blockchain technology developers.

Should there be the expected inflationary pressures, growing adoption of Bitcoin as a hedge against inflation and economic uncertainty may also pushing its price even higher still. 

3. Bond Markets 

Bond markets are pricing in potential inflationary pressures, especially if fiscal policies like tax cuts, infrastructure spending, and defense investment are actioned. 

The surge in Treasury yields suggests again an anticipation of increased inflationary pressure as a result of some policies notably the tariffs that formed a significant part of proposed economic policy in the next Trump administration.

4. Currency Markets 

The U.S. dollar has strengthened against other major currencies due to higher interest rate expectations. A stronger dollar has complex implications:

International Trade Impact: A strong dollar could make U.S. exports more expensive for foreign buyers, potentially affecting the profitability of U.S. exporters and the trade balance.

Global Financial Stability: Many international debts are denominated in U.S. dollars. A stronger dollar can increase repayment costs for countries with dollar-denominated debts, possibly leading to financial strain in emerging markets.

5. Impact on Commodity Markets

 

a. Gold: Often viewed as a safe-haven asset, gold prices initially dropped with the dollar’s strength but could see a resurgence if inflation fears grow. Persistent inflation concerns often prompt a flight to gold, which investors regard as a hedge against declining purchasing power.

b. Oil: U.S. policy supporting fossil fuel production may create downward pressure on oil prices in the long term if supply significantly increases. However, geopolitical factors and OPEC’s production policies will also play key roles.

c. Copper: Copper is integral to renewable energy infrastructure, especially in wind turbines and solar panels. Reduced enthusiasm for renewables under the new administration could dampen copper demand, impacting both prices and the supply chains of green technologies.

 

The potential impact of Tariffs

The use of tariffs has been a central part of the Trump campaign and although beyond the hype (and misunderstanding) of what this will actually look like in reality, widespread implementation WILL impact potentially in some key areas. 

Overall, the consensus appears to be is that buyers—primarily U.S. consumers and businesses—will bear the majority of the cost of tariffs. 

Here’s a breakdown of how this works and how these may impact in practice: 

 

1. Direct Cost on Imports: 

When a tariff is imposed, it acts as a tax on imported goods. The seller may attempt to absorb some of this cost to stay competitive, but often they pass at least part of it on to the buyer through higher prices. 

 

2. Impact on Consumers: 

For consumer goods, this means that U.S. consumers typically see increased prices, as companies raise their retail prices to cover the added tariff cost. For example, tariffs on electronics, furniture, or clothing often lead to direct price increases in stores. 

Estimates indicate that these tariffs could cost typical American households an additional $2,600-$4000 annually. 

 

3. Impact on Businesses: 

Many manufacturers rely on imported components, especially in the technology, automotive, and retail sectors  are likely to see impact.  U.S. businesses that rely on imports may face higher costs, which they then pass along in the form of higher prices for finished goods or services. 

 

4. Limited Absorption by Sellers: 

Foreign exporters might absorb part of the tariff to maintain their U.S. market share, but most economists agree this effect is often limited. In practice, many sellers have limited ability to lower prices and instead adjust their sales strategies or explore other markets.

 

5. Impact on economic growth: 

Analyses suggest that implementing a 10% across-the-board tariff on all U.S. imports could reduce long-term GDP by 0.2% and result in the loss of approximately 142,000 full-time equivalent jobs.

 

6. Global Trade Relations: 

Theoretically, imposing high tariffs could provoke retaliatory measures from trading partners, potentially leading to trade wars. 

This escalation may disrupt global supply chains and hinder international trade, adversely affecting both U.S. and global economic stability. 

 

BUT is there positive potential for tariffs? 

Some argue, and indeed has been at the basis of much of the Trump pre-election push, that tariffs could incentivise US domestic production and protect American jobs by making imported goods more expensive relative to domestically produced items.

As previously referenced, EV’s are a good example of this 

Implications for Australia

Australia could experience significant ripple effects from Trump’s policies. Although the severity of any impact may take some time to unfold, and is difficult to project in detail until we see the reality of policy implementation. However, there are some areas worth watching over the coming months. This include :

 

1. Economic Impact: 

With China as Australia’s largest trading partner, any tariffs the U.S. imposes on Chinese goods could indirectly harm Australian exports, especially in minerals and agricultural goods. 

As such an important part of the Australian economy, downwards pressure on the materials sector performance could have wide-reaching effects on Australian economic health as a whole, far beyond the direct impact on miners directly.

 

2. Investment Climate:

Policy shifts in the U.S. could lead to increased market volatility, which may make Australian investors wary. An unstable investment climate could also affect foreign investment inflows to Australia.

 

3. Australia-U.S. Trade:

 Australia may seek to bolster its trade agreements with the U.S., Generally, Trump favours bilateral agreements rather than multilateral, which could benefit certain Australian exports.

4. Security and Defense

 

a. U.S. Alliance Review:

 Trump’s scepticism toward NATO and other security alliances could influence the U.S.-Australia security relationship, especially in terms of cost-sharing.

 

b. AUKUS Partnership and the Indo-Pacific: 

As a crucial partner in the Indo-Pacific, Australia may see increased expectations from the U.S. to take on a more active role in regional security, especially regarding China. 

This may require heightened defense commitments and could influence the allocation of Australian resources into the defense sector..

 

5. Climate Policy 

Australia’s climate policies could be influenced if the U.S. steps back from international environmental agreements. Trump’s previous withdrawal from the Paris Agreement had notable implications, and the expected pullback in US commitment to global initiatives going forward may produce pressure on Australia’s climate commitments. 

Any U.S. retreat from international climate accords could slow global progress, impacting industries and investor sentiment around sustainable practices.

 

Summary 

Trump’s victory in the 2024 election represents a pivotal moment that will arguably redefine the U.S. and Australian financial markets, as well as broader economic and geopolitical landscapes. 

Whilst exact policy directions and timing are not likely to be clarified for some time, both traders and investors should prepare for market volatility. 

The real impact of these policy shifts will unfold in time, highlighting the need for vigilance and adaptability in response to evolving conditions. Of course, GO Markets are here to help with regular market updates including articles, videos and webinars to help you negotiate your way through such challenges.

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