U.S. election recap: What could GOP policies mean for investors?

Donald Trump has been elected President again. TV networks called the race at around 6:30pm SG/HK time, and the AP called the race shortly after. A win in Wisconsin put him over the 270 electoral college vote threshold.

The market responded as we expected in the event of a Republican sweep—U.S. large-cap stocks, small-cap stock, and bond yields were all sharply higher.

S&P 500 was up another +2.5% on top of previous day’s +1.1% gain. On Tuesday before election day, all 11 sectors were higher, and breadth was the best since August (87% of constituents finished higher).

Small-cap stocks were up +5.9% on top of previous day’s +1.9% gain, and are at one-year highs. The VIX Index (a measure of implied volatility) was collapsing ~5 points because the election outcome became clear so quickly. On the other hand, Hong Kong’s Hang Seng Index was down around -2.5% from previous day’s highs.

In commodities and currencies, gold was down (-2.9%) $2,664/ounce, as was oil ( -0.8% to $74.9/barrel). Bitcoin traded at all-time highs and has gained 10% over the last few days.

The key takeaway from the price action is that markets are more focused on the pro-growth policies rather than the risks of tariffs or increasing deficits. Bond yields are higher, but so is the dollar, and risk markets performed exceptionally well. Sectors that are exposed to regulatory risk, such as small-cap banks, also performed well. If deficit concerns were the focus, the dollar and stocks would be weakening as bond yields rose.

Your election recap

President Trump is on track to win every swing state. Republicans have won control of the Senate, and while the House of Representatives is still officially a toss-up, markets seem to think Republicans will win a slight majority. There are still 40 seats outstanding in the House, and it could take several days to a week to declare winners in all of the outstanding races.

Even if Republicans do end up winning the House, it seems as if their margins will still be slim. This means that negotiation and compromise will still be necessary for major policy proposals. Here is an updated look at the key issues.

On taxes: While there is still a long way to go in Tax Cuts and Jobs Act extension negotiations, it seems as if the “worst-case” market outcomes may have been avoided (e.g., higher taxes on capital gains, QDI treatment and tax exemption of municipal bond income). That said, a full extension of the TCJA may not be palatable to members of Congress who are worried about the deficit. The provisions of the TCJA won’t expire until the end of 2025, so we wouldn’t expect decisions to be made until the back half of next year. 

If fully extended, personal tax rates will stay at current levels outlined in the chart below:

Regardless of what may be enacted next year, it is a good time to reflect on giving wealth to future generations, whether outright or in trust if it aligns with your financial situation and goals. That’s principally because all future appreciation on those assets would not be subject to future U.S. estate tax on your (or your spouse’s) death.

On trade: President Trump has proposed an increase on tariffs to 60% on all Chinese goods and up to 10% on all other imports. While higher tariffs on China seem likely, the broad tariffs on all trading partners face much higher legal hurdles. The dollar strengthened as markets perceive that tariffs will extend “U.S. exceptionalism.”

On immigration: The President does garner relatively more power when it comes to immigration policy. President Trump has proposed much stricter immigration measures and an effort to deport asylum seekers. It is anticipated that immigration may slow considerably, though it is notable that during Trump’s previous presidency, he called for the deportation of 11 million immigrants, but there were only about 300,000 deportations per year from 2017 to 2020.

On the deficit: We said that regardless of the candidate elected, deficits will likely increase. As Michael Cembalest pointed out in his paper, Mind the Gap, President Trump’s policies as proposed would increase the deficit by ~$4 trillion. As previously stated, tight margins in the House and Senate will provide a buffer against this type of deficit expansion. That said, the move in bond yields suggests looser fiscal policy, better growth prospects, a higher landing place for the Federal Reserve, as well as higher inflation. 

All market and economic data as of November 2024 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

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Index Definition:

• The Russell 2000 Index measures small company stock market performance. The index does not include fees or expenses.
• Tokyo Stock Price Index, commonly known as TOPIX, along with the Nikkei 225, is an important stock market index for the Tokyo Stock Exchange in Japan, which tracks the entire market of domestic companies and covers most stocks in the Prime Market and some stocks in the Standard Market.
• The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.
• The EURO STOXX 50 is a stock index of Eurozone stocks designed by STOXX, an index provider owned by Deutsche Börse Group. The index is composed of 50 stocks from 11 countries in the Eurozone. EURO STOXX 50 represents Eurozone blue-chip companies considered as leaders in their respective sectors.
• The Hang Seng Index is a market-capitalization-weighted stock market index in Hong Kong, adjusted for free float. It tracks and records daily changes in the largest companies listed on the Hong Kong Stock Exchange and serves as the primary indicator of overall market performance in Hong Kong.
• S&P 500 - The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.