US Election: What Trump's election victory means for investors

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Transcript:

[00:00:00] Sheldon MacDonald: It's the 6th of November and we're here to chat about what we're seeing in the wake of the US elections.  

[00:00:06] Sheldon MacDonald: We've seen what's looking like a clean sweep for the Republicans, that removes a certain degree of uncertainty. Certainly what we don't have is a contested election with all the confusion that that would have brought.

[00:00:18] Sheldon MacDonald: So, in that sense, uncertainty removed, that's positive for markets. Markets we know don't like uncertainty and the fact that it's looking like a clean sweep, the ability for the Republicans to enact their policies without those policies being stuck in the legislative process for months and months, that might help going forward for markets to understand what the Republicans are wanting to do, and to have a reasonable expectation for their ability to enact those policies.  

[00:00:44] Sheldon MacDonald: But that's looking further ahead. Let's give a quick fire reaction. What are we seeing from markets, Nathan?  

[00:00:50] Nathan Sweeney: Okay, so I think you're quite right, so having that clear, decisive victory removes that uncertainty, so we've had a swift reaction in markets.  

[00:00:57] Nathan Sweeney: We can start off with equity markets, so we've seen a positive response for equity markets and specifically, if we look under the hood, it seems to be more of those value companies that are outperforming.  

[00:01:09] Nathan Sweeney: So the expectation is that Trump will be good for sectors like financials because of deregulation. He'll be good for commodities like oil because he'll be championing that Texas trade, so getting those oil companies drilling and then also some of the losers on that side around say trade policy.  

[00:01:31] Nathan Sweeney: So if you're an EU exporter or a Chinese exporter your stock is being hit and ultimately there is expectations around trade policy coming into effect.  

[00:01:42] Nathan Sweeney: And then also health care, so maybe rolling back of some of those initiatives that were put in place by the Democrats, so Obamacare so health care is off. But ultimately what we are seeing is a, generally a positive reaction in equity markets.  

[00:01:56] Nathan Sweeney: So as an example, the S&P is up over 2% this morning and feeding into that broadening out, so it's not just tech, so tech is off a bit and it's other sectors playing catch up. So good news, really from a market perspective.  

[00:02:08] Sheldon MacDonald: Yes, and we've seen that, as you say, broadening out, most Western markets also positive. I think the one market that was negative last night was China. As you say, potential there for tariff and trade policy impacts. Again, that we'll look to unpack in the weeks and months ahead.  

[00:02:24] Sheldon MacDonald: Let's look at currency markets, we've also had a stronger dollar.  

[00:02:27] Nathan Sweeney: Yeah, stronger dollars, so this is really feeding into a stronger US economy.  

[00:02:31] Nathan Sweeney: So ultimately coming into the election, Trump is seen as pro US economy, so if you have a stronger economy, you've got a stronger currency, so the currency strengthening in anticipation of that stronger economic growth.  

[00:02:45] Nathan Sweeney: So we've had this story of exceptionalism in the US so this exceptionally strong economy and we expect that to continue and that's where the dollar is strengthening.  

[00:02:53] Sheldon MacDonald: Yes, as you say, the stronger economy that plays out into potentially fewer rate cuts.

[00:02:59] Sheldon MacDonald: Now we do have a Fed meeting this week, are we changing any of our expectations on what we are likely to see from the Fed?  

[00:03:06] Nathan Sweeney: You would think that, that is the right course of action, obviously, if you have a stronger economy, perhaps that means lower rate cuts, but ultimately Donald Trump is pro economy, but he also wants to get rates down.

[00:03:17] Nathan Sweeney: And I think with inflation at around 2%, there's no reason why central banks can't lower interest rates, and we have a Fed meeting actually today and tomorrow and we're expecting a 25 basis point cut in interest rates. So we don't see a reason why even with the strong economy, that rates can't come down because inflation is less of a concern.

[00:03:37] Nathan Sweeney: I think the one spanner that people will be concerned about is what do tariffs mean for inflation?  

[00:03:43] Nathan Sweeney: If you put tariffs on Chinese product, which are being imported into the US, does that bring inflation back to the US and we did a lot of research on this and we looked at a report from Goldman Sachs and they put forward a case that yes, it's likely to add some inflation, but not the kind of inflation that we've been used to over the last two years.

[00:04:01] Nathan Sweeney: So if you think about it, inflation peaked at 9.1%, it's likely that those tariffs could add about 1% to inflation, but with other elements of inflation falling, we don't think inflation will be a concern.  

[00:04:13] Sheldon MacDonald: Let's look at some of the other asset classes, some of those diversifying assets, some of the safe haven assets that had been performing well, gold, oil, perhaps oil impacted by other things as well.

[00:04:24] Sheldon MacDonald: But those we're seeing falling slightly today.  

[00:04:26] Nathan Sweeney: Yeah so if you think about it, we've got a lot of geopolitical tension in the globe today. So we've obviously got war in the Middle East, we've got a war between Russia and Ukraine.  

[00:04:36] Nathan Sweeney: With that comes that safety trade, so people buying into gold, people buying into silver, and obviously impacting the oil price too and all of those are off today.  

[00:04:45] Nathan Sweeney: So we've got a lower oil price, we've got a lower gold price, we've got a lower silver price, and that's just telling you that there's likely to be some effort to resolve some of those conflicts in some of those regions.  

[00:04:56] Nathan Sweeney: And obviously the certainty of the election results also feeding through because there's uncertainty around what would happen feeding into those trades, so it's good to see actually the prices coming off in those areas because it means that there's likely to be some resolution going forward.  

[00:05:11] Sheldon MacDonald: And one area that we don't necessarily cover that closely, but perhaps unsurprisingly, the biggest winner overnight has been crypto up 15%.  

[00:05:21] Nathan Sweeney: Yeah, so we saw some big moves in the cryptocurrency market and Donald Trump is obviously pro cryptocurrency and looking to reduce the regulation in that market and that's why we're seeing an uptick in cryptocurrencies as well.  

[00:05:34] Sheldon MacDonald: So summing it all up in general at the moment positive for equities, less so for bonds, positive for the dollar  

[00:05:41] Sheldon MacDonald: As we spoke about right at the beginning removal of uncertainty is perhaps responsible for some of that positive mood that we've got in the markets but of course as we've seen last time a trump presidency can bring its own surprises.

[00:05:53] Sheldon MacDonald: Nathan You're a bit more sanguine on this though?  

[00:05:55] Nathan Sweeney: Yeah, I think if you think about it, so, you know, Donald Trump, this is the second time around.  

[00:05:59] Nathan Sweeney: So first time he would have been very new to politics and the impact of some of the things he says and the way he communicates through social media. So I think, you know, the market will obviously be used to that now because it's the second time around.

[00:06:12] Nathan Sweeney: So I expect that some of the volatility associated with that communication method may dampen somewhat, and I also think politically he'll be in a better standing because he has that experience to take with him for the next four years.  

[00:06:26] Sheldon MacDonald: Well, let's hope so, let's hope for some stability.  

[00:06:29] Sheldon MacDonald: Obviously, lots to look forward to in the months and weeks ahead.

[00:06:33] Sheldon MacDonald: We look forward to bringing you all of that in future podcasts.

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