Video: Red sweep – what does Trump's re-election mean for investors?
Donald Trump has a clear run to push through his legislative agenda when he returns to the White House. Senior US Economist George Brown and Head of Multi-Asset, Americas, Adam Farstrup explain how investors can navigate the new policy landscape.
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Click on the video above to watch the conversation or read the full transcript below:
After months of being too close to call, in the end, it was definitive.
Donald Trump won a second term and will become the 47th President of the United States. Winning both the Electoral College and the popular vote gives him a significant mandate to push many of his policies through Congress and into law.
With the Electoral Map redrawn, today we'll discuss what the result means for both the US and global economies, and for investors over the next four years and beyond.
With me in the studio in London today is our Global Economist, George Brown. And joining us all the way from New York City is Adam Fastrup, Head of Multi-Asset for the Americas.
Adam, we'll come to you first.
Immediately after the result, we saw equities rally, the dollar strengthen, and treasuries sell-off. All this at a time when concerns remain about the state of the economy and interest rates are falling. Why did things play out like that?
Well, I think the first thing is we were coming to this conclusion that we're really in a soft landing in the US at this point. The markets have already been looking to what's the next phase of that. With Trump's convincing election, what you're seeing, of course, is the consensus Trump trades really reacting in the immediate aftermath of the election.
We've seen, as you've said, equities rallying very strongly on an expectation that Trump's policies will continue to support the growth agenda, the growth of the US economy. We've seen small caps themselves rally. We've seen financials rally. All reflecting some of the agenda that Trump has put out as part of his election campaign.
We're also seeing a strength in the US dollar on the back of that expectation for growth, supporting higher interest rates going forward. In the immediate aftermath of the election, we saw US rates jump sharply higher as an expectation that not only growth would continue, but that perhaps Fed policy would not be able to be as accommodative.
We've seen that back off a little bit in the following days from the election. We'll have to see how that plays out. Of course, we've seen Bitcoin surging on an expectation that Trump's policies towards crypto and technology will be much more friendly than what we saw under the Biden administration.
When we turn the lens outside the US, what we're seeing is, I think, question marks across Europe. European equities have been down a little bit, but not as much as perhaps people would have feared. Then we've actually seen a sharp rally again in China, I think partially on the back of the renewed policy efforts that we're seeing from the Chinese government, some further stimulus coming out in the recent days, being announced by the Chinese government, but also perhaps an expectation that direct negotiations between the US and China might lead to some greater clarity in how things play out.
What does that tell us then about how investors view the election result, and how do you think that might play out over the next four years?
I think it's very clear that Trump is going to pursue a pro-business policy. He's going to want to support growth directly. He's going to want to support US jobs directly. We are expecting him to push through with unified control of Congress, a full renewal of the Trump tax cuts, and perhaps even more than that. We may see further expectations of tax cuts or policy changes supporting that.
We think you're going to see some executive moves around tariffs quite quickly. He's been clear about that in the days following the election that he will pursue the tariff policies. Now, the markets are looking to see, will that be a negotiating tactic? And ultimately, the tariffs won't be as high as pitched in the campaign itself, but we do expect to see some pretty strong tariffs on the back of that as well.
Then, deregulation. Again, Trump has said on day one, he wants to pursue some aggressive deregulation. I think that's part of what you're seeing in the crypto area, it's part of what you're seeing certainly in financials, where there's a very clear deregulatory agenda on the back of support for Wall Street and getting, in Trump's mind, I think liquidity going into the economy.
We've already had a lot of liquidity into the economy, but he wants to further support that and make sure that those players are able to deliver that.
George, all the things that you've just heard Adam talking about, how do they affect the economic outlook from your perspective?
It's a great question. I think, like Adam said, we don't know the extent to which Trump is going to implement these policies. But clearly, there's going to be some inflationary impact, and we think there's going to be a growth impact as well. We think that's going to be pushing up on inflation and pushing up on growth.
Obviously, that's got implications for interest rates as well, of course. For the Federal Reserve, for some time, we did find it quite unusual that they started off with quite an aggressive rate cut, at least at the start of their easing cycle.
And arguably now with Trump being elected president and with this red sweep looking likely, the implication of that is clearly going to be pushing the US in a reflationary direction, and it gives us greater conviction that the Fed isn't going to be delivering all the rate cuts that it had been suggesting that it would previously.
We saw Trump flip some states, he won all seven swing states quite convincingly. What does that say to you about not only the four-year second term, but the US economy beyond that, and the policy positioning that could be lining up?
I guess it determines about... The question will be, as people do the post-mortem on this election, what were the drivers of why people voted a certain way? Was it that Trump made a very convincing, strong economic argument, or was it that Harris failed to deliver hers?
Now, we don't really know. That will only become apparent in the months and years to come. But certainly it looks like Trump might be pushing the politics to a structural shift. It's likely that Democrats will look at this result and they might feel that they have to move themselves more into Trump's direction.
So certainly, you could see some more populist policies from the Democrats, you'd imagine maybe in the next election cycle, perhaps even in the midterms, that would be a good litmus test maybe for that.
Certainly, we could be seeing a structural shift here in terms of politics. That has big implications in terms of inflation, growth, but also, of course, the budget deficit as well as consequence.
Adam, for the longer term investor, does that mean that investors should be thinking now about 5, 10 years ahead, or is it a case of wait and see?
Well, I think what is clear in the wake of this election, and this is consistent with what we have seen all around the world over the course of 2024, is a dramatic reaction from voters everywhere, where you've seen all of the incumbent parties really thrown out of office.
I think what this is telling us is we're living in an era of disruption, where people are feeling uncertainty, they're feeling concerned about their place in the world. And so politicians and policies will react to that.
And I think that's going to take a much more active approach to risk management in that era. The idea that we can simply take our assumptions of the past and fit them to the future is no longer true.
In this era of disruption, we think there's opportunities and we think there are risks that investors can capture, but we need to very carefully follow the actual policies that come out of these governments to take advantage of that.
Thank you both very much for all of your wisdom and expertise today. As ever, George, Adam, and our experts will be keeping you updated on what's going on in the US and around the world. You can keep up to date on Schroders Insights. Thank you very much for watching.
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