Post US Election Results: Impact and Insights on Financial Markets

Donald Trump claimed victory in the 2024 US election early on November 6 in Florida, to chants of “USA” from his supporters. With that, a tumultuous race for the White House looks to have ended with Trump the only man in modern history to serve two presidential non-consecutive terms. 

After much speculation about a very close race and counting of votes that might take days or even weeks, Trump is set to win all seven of the crucial swing states and the popular vote – that is something no Republican has done since George W Bush in 2004. A big win in the Senate was also achieved while the House of Representatives is still to be decided.  

This article will analyse the impact of Trump’s overwhelming victory on financial markets. Trump’s historic second term, with a potentially unprecedented and more powerful mandate than in his first stint as the 45th president, is expected to be both volatile and groundbreaking. 

Key Points 

• Trump’s clear-cut victory eliminated election uncertainty, spiking stock markets as major indices opened at record highs. 

• US Treasury yields surged amid inflation expectations tied to Trump’s fiscal and trade policies, impacting bond prices. 

• The dollar strengthened considerably, with tariffs and tax cuts expected to fuel inflation and reduce the likelihood of rate cuts. 

Post-Election Results and Trump’s Economic Agenda for His Second Term 

Donald Trump, the 47^th president-elect promised a “golden age of America” with a stunning landslide win for the 78-year old convicted felon and survivor of two assassination attempts. The resounding win was delivered with an “America First” agenda that gained ground on the Democrats in 48 of the 50 states in the union ^[1].  

The former president swept past the “blue wall” in the Midwest by promising lower taxes for businesses and individuals, stricter immigration, and protectionism through tariffs. Trump believes these will raise revenue, promote re-shoring of production and boost economic growth and jobs. His focus on immigration and the economy also hit the mark for many Americans. 

The defeat for Kamala Harris comes after an eleventh-hour change of the Democratic candidate when President Joe Biden abandoned his re-election bid. Her positions on foreign policy, choice of running mate and general voter disillusionment with the current administration all contributed to a chastening night. Her media strategy also came under fire and the late “garbage” gaffe by Biden was seized upon by the Trump campaign.  

Election Results Analysis ^[2,3] 

Donald Trump has done it again. In the 2024 United States elections, eight years after his stunning upset over Hillary Clinton and four years after Joe Biden sent him packing from the Oval Office, the former president is returning to power. The ultimate populist leader will be joined in power by a Senate now once again in Republican hands, after four years of Democrats control. This should ease the path for political appointees. A red Sweep is also looking possible where the Republicans control both houses of Congress. 

The same amount (54%) of male voters opted for Trump as females did for Harris. Black voters overwhelmingly (86%) chose Harris, while Latino voters were split between Harris (53%) to Trump (45%). Older voters generally sided with Trump and younger people for Harris. College graduates also picked Harris quite strongly over Trump (57% to 40%).  

Key Policies from the Newly Elected Candidate Influencing the Market 

The American election results were anticipated weeks ago by betting markets, which accurately called the outcome. The “Trump Trade” then swung into the public lexicon as financial markets priced in higher interest rates, inflation and the dollar. Bitcoin and stocks also gained in value. 

In short, strong growth is forecast as the policies bake in American exceptionalism. Trump’s key policies influencing markets include widespread expectations for an inflationary mix of domestic (fiscal tax cuts and migration) policies, together with external (tariffs) policies. That said, it is hoped that deregulation and also measures to reduce energy costs will ease price pressures.  

Immediate Market Reactions to Trump’s Victory 

Here are some immediate market reactions to Trump’s historic victory: 

Stock market ^[4] 

Stock market indices opened at record highs with the major US stock indices up 2 to 4%. A red wave scenario was being eyed by bulls, while the clear-cut nature of the Trump win eliminated any prolonged uncertainty from any recounts or legal wranglings which were thought possible. 

The Dow Jones, S&P 500, and Nasdaq Composite experienced substantial gains, fueled by investor optimism around Trump’s pro-business policies and the prospect of a more accommodating regulatory landscape. The Dow rose by 3.6%, adding over 1,500 points, while the S&P 500 and Nasdaq Composite increased by 2.5% and 3%, respectively. This surge highlighted a strong market reaction, indicating a positive shift in sentiment toward industries likely to benefit from Trump’s economic policies. 

Notable winners included bank stocks like Morgan Stanley and Goldman Sachs as interest rates are set to stay higher for longer, while regulation will be light-touch and tax cuts would help dealmaking. The Bank Index rose over 10%, its highest level since early 2022. Defence, oil and gas companies also performed well as Trump courted these companies during his campaign, vowing to rip up Biden’s climate agenda.  

Tesla, owned by Trump supporter Elon Musk, saw a significant boost, with its stock price soaring nearly 15%. Musk’s vocal support and active role in the campaign created expectations that his companies would benefit from Trump’s pro-business stance, potentially enhancing Tesla’s position in the EV market amidst anticipated regulatory rollbacks for competitors. 

Bonds 

US Treasury yields ripped higher to levels last seen in July. The supposed inflationary      nature of Trump’s policies has seen bond prices plunge in recent weeks. Markets are also increasingly focusing on the thorny issue of debt sustainability.  

Forex 

The dollar soared the most since the 2016 Brexit vote as investors continued with the Trump Trade. A new regime of trade tariffs and tax cuts is seen pushing up inflation and reducing the need for rate cuts. 

The dollar index recorded its biggest gain in more than eight years with the yen and euro suffering the most. Tariffs and a potential trade war are expected to hit growth in Europe at the same time as a new US economic package boosts their economy.  

Commodities 

Gold sold off aggressively as rising yields and the dollar hit gold bugs. The fall to three-week lows came because tariffs and stricter immigration controls may cause inflation to rise and so limit rate cuts. Tighter monetary policy and a stronger dollar could be headwinds for the precious metal. 

Oil prices were choppy as tax cuts may support oil prices in the short term. But focus on US energy independence and pressure on OPEC+ to increase supply could see weaker prices longer term. There may also be stricter sanction enforcement against Iran. 

Long Term Market Outcome to Trump’s Victory 

Trump’s second term is expected to bring significant shifts across financial markets, with long-term impacts on stocks, bonds, forex, and commodities: 

Stock Market (S&P 500) 

A red sweep could fuel hopes for lower taxes and deregulation, which means a hot US economy that drives equities over the next year. Some economists believe that earnings will expand, and margins remain high, with the financial and defence sectors likely winners. 

Energy stocks might also outperform as Republicans intend to make the US the largest oil and gas producer, to lower energy costs. That said, equity multiples and margins are higher than in the previous Trump administration. The US fiscal position and excess demand may also impact the stocks indices. 

Historically, the reality is that presidents have had relatively little impact on stock market returns. There can be short-term market reaction to an election, but longer-term equity and sector returns are not generally reflective of a presidency. Returns are in some cases opposite to those implied by amplified electioneering. For example, the S&P 500’s annualised return was identical (16.3%) during Barack Obama and Donald Trump’s presidencies, despite their starkly different goals and policies ^[5]. 

Bonds 

US Treasuries, under a Trump Presidency, are seen falling with a steeper yield curve, and most aggressively with a red sweep amid a risk-on theme. Some strategists are citing the 5% handle as a target for the US 10-year yield. On top of this, they say that a gung-ho attitude to the ballooning fiscal deficit adds to issuance and potentially pressurises bonds further, causing yields to rise. 

Both candidates intended to keep on spending, but Trump is seen as the more profligate. Fiscal discipline has long been seen as a problem in the US with a climbing deficit. Some strategists are asking at what point do investors say enough is enough on US government spending, and they refuse to foot the bill?  

Forex (Major forex pairs) 

USD is expected to strengthen given the increase of US exceptionalism by tariffs and fiscal spending with EUR, CNH, MXN, AUD, NZD likely to underperform. The spillovers to the eurozone may also depend on whether Trump manages to secure Congress.  

In the case of a clean sweep, it was thought that Trump may prioritise domestic policies, such as taxes, before implementing tariffs. In this scenario, the economic impact on the eurozone may be delayed, reducing the near-term impact. But stagnant eurozone growth and political upheaval, plus a possible trade war with China means the European economic model is under severe pressure. CAD could outperform its peers, as it did under Trump 1.0, as it is highly leveraged to the US growth outlook.  

Commodities (Gold and oil) 

Over the longer-term, gold is expected to be a beneficiary of the second Trump administration due to growing complacency over the rise in fiscal debt and trade tensions. But rising yields pose an issue to the non-interest-bearing asset. 

While energy policies are aimed to boost domestic production, market constraints could limit the impact. A swift end to the Russia/Ukraine war and less tension in the Middle East may see the risk premium priced out of crude oil. Pressure on OPEC+ to increase output might also see softer prices.  

Long-Term Economic Projections 

Historically, markets can experience heightened volatility in the weeks following US elections as investors adjust to the outcome of a new President and party. However, a clear winner tends to ease uncertainty, leading to market stabilisation and a focus on economic fundamentals. Over the long term, markets tend to steady and perform positively regardless of the winning party, driven by broader economic conditions rather than political changes alone. That means it is policy, not politics, which matters most for the economy and markets. 

Meaningful changes in fiscal policy require control of both houses of Congress; and even in a Republican sweep scenario, legislation would still be time-consuming and likely come last. Trump’s expressed intentions in his campaign messaging and the precedent of his first term will probably result in tariff changes coming first. 

Trade and tariffs 

Trump might take a hard line on foreign policy, particularly with China, and might use executive orders to increase control on outbound investment and data. Trump has also proposed a universal baseline tariff on all US imports of 10%, along with a 60% tariff on imports from China [6]. 

Heightened US-China tensions are predicted, with greater use of industrial policy on both sides. Markets will focus on the potential for aggressive tariff hikes, as this is one area where the President has unilateral authority. Higher tariffs could both boost inflation and slow economic growth via less trade. Mega-cap stocks may be impacted with higher tariffs given the extra costs that would arise from relocation and Chinese retaliation against these control measures. 

Taxes 

Without the urgency of a recession or a pandemic to address, there seems to be little need for fiscal stimulus. But Trump has proposed a permanent extension of major components of the tax act, a further lowering of the corporate tax rate, and other new tax provisions. Stock markets may react favourably, but tax cuts could contribute to a widening of the existing fiscal deficit. 

Immigration 

After a migrant surge in recent years, immigration is set to moderate. The Trump campaign promises a crackdown on migration with much stricter immigration measures and an effort to deport asylum seekers to other countries. 

A reduction in immigration overall would slow population growth, leading to knock-on effects like continued labour shortages in certain sectors. However, these effects could take a while to hit the economy. 

Project 2025 ^[7] 

With some speculation surrounding Project 2025 and its potential implications, it’s worth noting that while former President Trump has publicly distanced himself from the project, many of its proposed policies mirror themes from his first administration. Created by the Heritage Foundation, Project 2025 provides a conservative blueprint for a prospective Republican government, focusing on reshaping fiscal, trade, and immigration policies to align with conservative principles. 

What Traders Should Watch For ^[8,9,10] 

The FOMC meeting on Thursday (7 November 2024) will be important, especially if policymakers offer any guidance on where interest rates are going.  Chair Powell is very likely to say that the data is noisy, but that the broad trends point toward a gradual rebalancing of pressures on supply and demand at the margin. He is expected to bat aside any questions about the election.  

A 25 bps rate cut is priced into markets, which tallies with the latest Dot Plot median projection from September. There is currently around a 90% chance of another quarter point move in the final meeting of the year in mid-December. But at one stage the day after the election, around 100 bps of rate cuts got priced out of the bond curve for 2025, leaving the terminal rate near 3.75% instead of 2.75%.  

Before the final FOMC meeting of this year, we only have one more monthly non-farm payrolls report and two other inflation releases. All three sets of data would need to be very strong to upset another rate cut. What 2025 brings is more uncertain with a pause potentially possible. 

Regarding the jobs data, a rebound will be expected in the November NFP report after the very low recent headline print. Hurricanes and strikes in October limited job growth, resulting in a net gain of only 12,000 jobs for the month. How much of a bounce back will be important for both markets and rate setters.Fed officials have endorsed a gradual reduction in borrowing costs as inflation risks remain, though the current levels of rates are in restrictive territory. 

Project 2025 Implications for Traders ^[11] 

For traders, Project 2025 introduces potential shifts that could influence market dynamics over the coming years. With its emphasis on reducing regulatory burdens and tightening trade and immigration policies, traders should be watchful for impacts on sectors sensitive to these changes, such as tech and manufacturing.  

Additionally, Project 2025’s potential for heightened U.S.-China trade tensions could lead to increased volatility in global markets, especially if tariffs are reinstated or expanded. Keeping an eye on any related announcements or policy shifts could help traders anticipate market movements driven by these geopolitical and economic changes. 

Strategies for Traders to Trade Trump 2.0 

As we have explained, stop loss orders can help traders navigate volatility. Using an order like this may take some of the excitement out of trading since we know that we will only lose a certain amount on any given trade. But ignoring a stop loss, even if it leads to a winning trade, is bad practice.  

Exiting with a stop loss, and so having a losing trade, is still acceptable if it falls within the trading plan’s rules. Of course, while the preference is to exit all trades with a profit, this is not generally realistic. Using a protective stop loss helps ensure that our losses and our risk are limited. 

Many technical traders using charts and price action will place these types of orders near support and resistance trendlines. ‘History repeats itself’ is the backbone of technical analysis and can be applied very well to these levels as the market will often react to these important price points. 

But traders will need to think about their exact placement of these orders as putting them around those key support or resistance levels or round numbers can leave you at the mercy of stop hunting, especially in more volatile market conditions. This is where institutional algorithmic traders push prices to these levels in order to trigger stops, then creating covering trades to take profits or open new positions. Adjusting the stop loss to the market’s volatility, so not just a predefined amount of pips away from entry may be key in the current environment. 

Risk management and Trading Diversification Post-election. 

Risk management is a key foundation for any successful, long-term trader. This is particularly crucial during major risk events such as the US election. Position sizing, diversification and buying alternative assets and instruments like options can help protect your trading and investing pot against unexpected outcomes. 

Many traders like to refer to a famous line written by a military general, which suggests that planning and strategy win wars, and not the battles. It is the planning ahead, the scenario analysis, which pays dividends in the end and can sometimes mean the difference between success and failure. This is certainly true of risk management techniques and processes. 

Using stop losses to manage risk during potentially volatile trading conditions is a great way of planning ahead. A stop loss order is a fixed amount of risk that a trader is prepared to accept with each trade. The stop loss can be either a dollar amount or percentage, but either way it controls the trader’s exposure during a live position. 

A balanced approach to trading different asset classes might help capture opportunities while managing exposure. This widens the risk characteristics of your trading and investment portfolio which means your account may not be dependent on just one or two markets which could cause major drawdowns. 

Conclusion 

The good news is that the uncertainty and wait for the US election is finally over. In addition, the possible drawn out nature of a close vote has not come to pass. With such strong moves and price action that we have seen already on the first day of the result, markets may take a breather at some point to assess the moves, both recently and over the last few weeks. But the incoming Trump presidency will cause a lot more volatility in the months ahead, and traders should be ready for tweets, policies and characteristic mood swings all directing markets.  

It should make for multiple trading opportunities, depending on your trading style and timeframes. It also means you need to have a solid trading plan and be up-to-speed and fully informed with financial news and commentary. Visit the Vantage Presidential Election page to explore the latest opportunities. 
 
Open for a live account with Vantage to start trading post-election opportunities. 

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The information has been prepared by Vantage UK as of 7th November 2024 and is subject to change thereafter. The information is provided for educational purposes only and doesn’t take into account your personal objectives, financial circumstances, or needs. It does not constitute investment advice. We encourage you to seek independent advice if necessary. The information has not been prepared in accordance with legal requirements designed to promote the independence of investment research. No representation or warranty is given as to the accuracy or completeness of any information contained within. This material may contain historical or past performance figures and should not be relied on. Furthermore estimates, forward-looking statements, and forecasts cannot be guaranteed. The information on this site and the products and services offered are not intended for distribution to any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.      

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