The return of Donald Trump

All data referenced in this article are sourced from Bloomberg unless otherwise stated, and is accurate at the time of publishing.

Donald Trump’s return to the White House represents one of the most stunning political comebacks of all time, if not the most stunning. 

His typically pugnacious and high-octane campaign has persuaded large swathes of America to bring the curtain down on the Democrats’ short stint in power. 

The dominant result blew apart earlier forecasts of a close race, with victory in the state of Wisconsin ultimately confirming his return to power. The Republicans held the House of Representatives and took control of the US Senate. Trump consequently has control of US Congress. 

From an investor perspective, the key questions now revolve around the extent to which Trump’s policies might influence the short-term direction of the world’s most important economy. 

An important point to make here is that any influence will likely be for the short term. History has shown that politicians have never altered the long-term direction of global markets. As we’ve said many times before now, markets will always beat to their own drum.

Where next?

As the prospect of a Trump win gained momentum, the US dollar surged to levels not seen in over two years. There was further strengthening as the comprehensive nature of the win came to light. 

At the time of writing, the dollar index is up more than 1.5% and back to July’s levels. It is also back to two-year highs versus the euro. 

In parallel, many investors rapidly sold out of US government debt in the expectation that Trump policies might lead to an even larger US fiscal deficit, and potentially higher inflation – both of which would lead to interest rates staying higher for longer. 

At the time of writing, US 10-year Treasury yields had risen 20 basis points so far today, and are closing in on 4.5%.

Trump has been a vocal proponent of trade tariffs, echoing his first time in office. He has also promised to oversee a low-tax economy, while simultaneously clamping down very hard on illegal migration. 

If these promises materialise, the cost of imported goods will likely rise, and wage bills would be expected to increase as the supply of cheap labour becomes more restricted. 

Collectively, this poses a potential headache for the US Federal Reserve which was on path to steering the US economy towards a much-desired ‘soft landing’, driven by a slow and controlled reduction in interest rates. 

In an already-tense geopolitical climate, it is logical to expect relations with China – the core target of US tariffs – to sour in the months ahead. Friction between the world’s two most important economies will be closely watched by investors.

Brace for rhetoric 

As always for investors, it’s important not to get carried away in the short-term noise of political drama. Market volatility is to be expected in the short term, as the US economy is pointed in a significantly different direction. 

There is also a huge element of the ‘unknown’ with Trump, which makes speculative trading inherently risky. As much as tariffs are seemingly on the cards, the timing or quantity are unknown. 

Against this backdrop, investors need to stay focused on their long-term goals. Getting wrapped up in the media maelstrom will not help and risks inducing knee-jerk decisions that come back to bite. 

By coincidence, our Outlook 2025 report will be released in the next two weeks. Amongst other topics, there is a special chapter focussing on the US, and a dedicated chapter offering timely behavioural finance insights to help investors stay composed. Both would be well worth a read. 

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