The 2024 election results are in and now it is time to plan. There has been an obvious divide in our country over Donald Trump becoming the 47th president, and it is not our role to take a position. Rather, our role is to understand the facts and assumptions around his presidency and its impact on the markets; not to speculate about what “could” happen, but rather digest what does happen. We all have our personal feelings about the results which dictate whether we view a bright or dire future. It will be some time before we know what the lasting impact of the election will be, our goal is to be fully engaged in the “now”, to monitor the new and market and to relate any changes back to what it means for our clients’ finances.
What we find to be very interesting is that while numerous established polls predicted this presidential election to be a dead heat, the betting markets predicted a Trump win. Admittedly less “scientific” than the many polling services, they turned out to be the most accurate predictor. This is just one great example that the next four years may be difficult to predict by normal measures.
The markets have had a week to digest the results, and there are some clear winners and losers. The goal of this update is to highlight what has changed from our past commentaries, what the market is telling us now that we have the results, and how this impacts our thinking and strategy looking forward.
What has changed?
While there may be social changes on the horizon, not as much as you might think has changed from the market’s perspective:
- Economy: The economy is doing very well. We still have a low unemployment rate and solid GDP growth. Economists have expressed concerns that Trump’s tariff policies and deportation plans may cause major declines since growth and could lead to higher unemployment. The market seems to be concerned but is also sending a message that they think Trump’s actions will be less extreme than the rhetoric.
- Central Banks: Jerome Powell, chairman of the Federal Reserve, has made it clear that he will not be influenced by Trump. Trump has made statements in the past that elected leaders should be able to have sway on the Federal Reserve’s policies. If he could, Trump would push for more cuts to help fuel the economy. Overall, we don’t think this is going to have much impact in the near term.
- Inflation: The greatest risk to Trump’s policies is higher inflation. Tariffs are likely to lead to price increases, and a deportation program would lead to fewer jobs being filled, possible wage inflation, and prices spiking in industries with high numbers of undocumented workers (construction is one of these industries, with one-third of construction workers being undocumented).
- Bond Yields: The yield on the 10-year treasury bond increased sharply ahead of the election. The initial response to the election results was a spike, but in the days following the election, the yield on the 10-year moved back to where it started before the election. While its future is hard to predict in the short term, there is more risk that yields spike on inflation concerns than the chance that yields decline.
What is the market telling us after the results?
The broad rally is telling us they believe some of Trump’s campaign promises, but not all of them. As one commentator put it, “It is as if the market is believing whatever it wants to believe. Since Trump says so much when campaigning, it is hard to know what to take seriously and what to dismiss. It is like a choose-your-own-adventure policy word salad.”
- Tax cuts likely to be extended. One policy the market seems to believe is that Trump will extend the tax cuts that were set to expire in 2025. This would be good for corporations and corporate profits. This may be the simplest and most plausible reason for the market’s steep rise after the election. This also has a major impact on tax and estate planning strategies for individuals. As we gain more clarity, we will have more communication and commentary to update everyone. For now, stay tuned...
- Regulation is likely to be less strict under a Trump Administration. U.S. banks have had a steep rally, along with midsize companies that might be take-over targets for larger companies. The Biden/Harris administration had an aggressive antitrust approach to regulation, and after the banking issues with SVB and Signature bank, the expectations were for significant regulation hurdles for the banking sector. Trump is expected to be much laxer. Another beneficiary has been Bitcoin and cryptocurrencies in general. Trump made waves by being very pro-crypto on the campaign trail.
- Tariffs are likely, but the market seems to think it might be more selective than sweeping. Companies that have a large import business have been hurt since the election. A good example is Nike and other retailers that import goods from abroad. Another loser since the election are foreign companies that sell a lot of goods in America; two easy examples are Luis Vuitton and European automakers.
- Defense spending is likely to remain high. Defense sector stocks have benefitted since the election on the anticipation that Trump will not cut defense spending. These stocks have been rallying for some time, so nothing too exciting on this topic.
- Drill baby, drill. Clean energy stocks such as solar companies have sold off sharply given Trump’s pro-oil talk and his skepticism of alternative energy. Oil and natural gas companies have gotten a boost despite the commodities not moving up on the news.
- Tesla has seen a huge bounce. One commentator said it perfectly, “Elon Musk is the best trader of the year. He spent 120 million dollars helping Trump in the campaign, and his net worth increased by an estimated 70 billion dollars.” The thought process is that Musk is in Trump’s inner circle and will have influence on benefits Tesla might receive from the government.
How is this impacting our thinking?
As I mentioned earlier, not much has changed (yet) from a market perspective. The market had predicted Trump would win before the election, so many of the trends we were following pre-election continue to play out. Our biggest concern is that the market might be getting ahead of itself in anticipating these policies and their potential impact. We don’t have immediate concern around that; the strength of the market breakout is clear, and things don’t usually turn around on a dime after a big news event.
What we do promise going forward is that we will remain focused on how things evolve and change as new information, data, and policies roll out. As we have advised over the past 12 months, try not to get emotional in either direction. The healthiest thing to do is to keep your political and investment decisions separate. While we don’t know what the future will bring, we know that we will be here, working as hard as ever to help our clients navigate the uncertainty ahead.
Jordan Kaufman
Chief Investment Officer
Green Ridge Wealth Planning
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