Scott Kingsley, Senior Wealth Advisor
In November 2024, Donald Trump shocked political commentators by winning the US presidential election for the second time. Of course, US elections are significant from a global perspective, and the next four years look set to be an interesting period for financial markets.
From fluctuations during the election to projections for the future, strategic recommendations for investors, and more, this article will explore what another Trump presidency means for financial markets and your personal wealth.
As the leading national economy and global trader, the lead-up to any US election is generally met with market volatility.
This is largely down to uncertainty, which markets don’t like because it means more speculation from investors. The result is usually caution as they wait and see what happens, which is reflected in stock prices that regularly fluctuate in response to predictions.
The first year of a presidency usually means more stability and stronger market performance because of newfound clarity and optimism. This is particularly true if the winning party was expected to win because it probably means things are going to be more predictable.
However, some leaders make big economy-based promises in the lead-up to an election only to impose stricter rules once they’re in charge.
Of course, the winning party is of huge significance, with Democrats generally associated with regulation and higher taxes, which can create a difficult environment for high-earning investors.
On the other side, Republican administrations tend to favour business tax cuts and financial deregulation. These tend to boost the price of stocks and give the markets more peace of mind and stability.
The 1980 campaign brought pre-election concerns such as high inflation and economic stagnation in the US and globally. When Ronald Reagan took charge, however, there was a market rally as investors anticipated tax cuts and deregulation.
This is how it panned out in the long term, and pro-business policies led to a huge bull market for investors in the 1980s.
The 2000 presidential election campaign, Bush vs. Gore, was similar, with market uncertainty in the buildup. The uncertainty continued, and the S&P 500 dropped by a massive 5% between Election Day and the Supreme Court’s decision to confirm Florida’s result, which led to a Bush victory.
However, once Bush took charge, markets stabilised for a while, as they often do under Republican administrations. However, pressures of the time, such as the dot-com bubble, the war in Iraq, and various other factors, led to an economic slowdown and recession.
Before the 2016 presidential election campaign between Trump and Hillary Clinton, markets saw Clinton as the predictable choice an,d therefore, the favourite. Trump was seen as volatile and uncertain, which led to market volatility in the election race. Once Trump won, however, there was a “Trump Rally” due to his promises of tax cuts, deregulation, and infrastructure spending.
This led to an S&P 500 rise of 5% in the month following the result, with financial, industrial, and energy sectors benefitting from his deregulation and business-first policies.
The upward trend continued into the long term with consistent growth for the S&P 500 thanks to tax cuts and deregulation. In fact, the S&P 500 increased by around 70% in value from when he took charge in 2016 to when he lost the 2020 election.
As expected, the 2024 election campaign led to mixed reactions. The political uncertainty and potential policy shifts resulted in caution from investors, while markets fluctuated depending on who seemed to be favourite to win in the polls.
Immediately after Trump’s victory, US equities and bonds surged due to hopes of deregulation and a business-friendly administration. Bitcoin also saw a large increase because Trump promised to establish a crypto-friendly government that potentially introduces a Bitcoin reserve, which means holding a large stock of crypto as security.
In terms of currency, the US Dollar strengthened after Trump’s victory, reflecting investor confidence in the domestic economy in an unpredictable global landscape. The energy sector, particularly those in oil and gas, also saw gains because of Trump’s promises to reduce regulations when other countries are focused on becoming more sustainable.
Overall, the reaction of markets was consistent with previous elections after Republicans took charge. With deregulation and fewer taxes expected, markets reacted positively, although broader economic conditions may rock the boat of optimism in the future.
The US remains the benchmark for global fixed income, so ripple effects will be felt globally during Trump’s presidency. Here’s what could happen:
While the immediate aftermath of Trump’s victory saw surges in the markets, there is potential for short-term volatility, particularly with bonds, as the US Treasury reacts to the result.
The same could be said for international trade like tech and consumer goods which also may see short-term volatility. Traditional energy, defence, and financial markets are likely to continue seeing boosts.
These are the kind of results we saw last time Trump took charge, alongside instability in global trade-sensitive industries and a negative impact on emerging markets.
Trump’s pro-America framework will have knock-on effects on the global economy. Most analysts argue that tariffs will increase costs, which means higher inflation, and businesses could see their profit margins reduced if they can’t pass production costs onto customers.
There are also concerns regarding global trade relationships as Trump continues to raise tensions with China, Canada, and Mexico, to name a few. This could lead to retaliatory tariffs that further feed economic uncertainty and result in higher inflation, which might mean higher interest rates in the US and around the world.
Many predict a strong period for the US Dollar, but emerging markets that rely on US trade might feel the negative effects of this. US exports could also become less competitive and markets with dollar-denominated debt might suffer.
Other currencies are also likely to fall, with some analysts predicting the Euro will fall below the $1 level if Trump’s tariffs and tax cuts take place.
Less regulation and lower taxes for big corporations could lead to an upswing for equities, with technology, defence, fossil fuels, and banks prospering the most. S&P 500 earnings could also increase if corporate tax rates get cut from 21% to 15%, which Trump has promised. However, these measures might not pass through Congress.
On the other hand, the fact that Congress is also Republican bodes well for stock stability because the markets love predictability, and cohesion between the House and president is generally a positive thing.
Trump has talked a lot about tariffs in his election campaign and has threatened to impose a blanket 10% on all imports and up to 60% on Chinese imports. This led to high volumes of selloffs in stocks tied to global trade due to potentially higher costs in the long run and supply chain disruption.
Emerging economies will also be worried about Trump’s tariffs, particularly Mexico, as Trump could add tariffs as high as 200% on Mexican vehicle imports. This could reduce the Mexican peso’s price to never-before-seen lows.
Brazil, South Africa, and chipmakers in Taiwan, South Korea, and others that produce for Chinese tech firms may also be vulnerable.
Trump’s presidency means volatility for various markets in the short and medium term, but it’s important to avoid kneejerk investment decisions. This is because market volatility is generally down to speculation which isn’t grounded in any actual change.
That’s why it’s important to stick to the principles of investing and to have trust in the process. A disciplined, long-term approach has historically shown to be the most effective, regardless of the US presidency, so having a well-diversified portfolio is highly advised and helps you minimise risk in times of uncertainty.
Professional advice also helps you remain agile and informed as an investor and pounce on any opportunities that arise from Trump’s presidency.
With knock-on effects for the rest of the world, the impact of Trump’s election win remains to be seen, and speculation is nothing to be overly concerned about from an investment perspective. As long as you have a diversified portfolio structured in line with your attitude to risk, you’ll be able to navigate any uncertainty from the US election.
However, there are challenges on the horizon, but there’ll also be opportunities, so it’s highly advised to speak to a financial adviser with expertise and knowledge of financial markets.Contact me today to schedule a consultation, and we can explore what a Trump presidency might mean for your specific circumstances and more importantly, how to plan for a prosperous financial future.