• Donald Trump becomes the 47th President, defeating Kamala Harris, with Republicans securing full control in Washington.
• The S&P 500 rose 2.5%, with global stocks up 2.4%, fueled by optimism over tax cuts and deregulation.
• Expected tax and regulatory cuts could drive equity growth and benefit smaller U.S. companies.
• Bitcoin surpasses $90,000 amid a pro-crypto stance, pushing the total market value past $3 trillion.
• Policies favoring oil drilling and gas exports face skepticism due to oversupply and weak demand.
• Emission rollbacks and tariffs aim to support U.S. auto and manufacturing industries under “America First” policies.

In a historic comeback, Donald Trump became the 47^th President of the United States of America, surviving assassination attempts, criminal convictions and a change in political opponent. Trump won 312 electoral votes, against 226 won by his Democrat opponent – Kamala Harris. Moreover, Republicans win control of House, cementing a GOP trifecta in Washington. The strong win can open way for the possibility of major legislative initiatives, which has energised the market globally.

On the expectation of lower corporate taxes and a decline in red tape, the S&P 500 jumped by 2.5% the day after the election, and hit successive records on November 6th, 7th and 8^th. Changes to capital gains taxation could also be on the table, which might encourage more investment in the stock market if rates are lowered.

Market Optimism Post-Election 

Source: Pixabay

As the largest economy in the world, global markets were buoyed by prospect of strong US economy. By the end of the week stocks were up by 2.4% globally relative to election day. On November 6th, even equity prices of Shanghai- and Hong Kong-listed firms, which are most exposed to the punitive tariffs imposed by Trump declined by 0.5% and 2%, respectively, only which showed no strong sign of panic. This is when his threat to raise tariffs on all imports, which would squeeze businesses’ margins and ignite a trade war.

The election results also prompted “Trump trade”. The trade hypothesis posits that a second administration would positively impact American equities, while having a moderately adverse effect on Treasuries and a beneficial effect on the dollar. Corporate tax reductions and deregulation would enhance equity returns. These same tax cuts, although increasing government borrowing and consequently depressing bond prices, would not destabilize the economy or negatively impact stock market performance. The overall effect would be a strengthening of the dollar, which has generally exhibited a positive correlation with U.S. 10-year Treasury yields in recent years.

Read: U.S. Economy: Weathering the Storm

Corporate Gains and Small Business Boosts

The sustained superiority of American corporations, evidenced by their greater size, faster growth rates, and superior profitability, suggests that they are well-positioned to continue outperforming their international counterparts. Moreover, there are expectations that in America, smaller listed companies should enjoy a bigger boost than large ones, prompting a 6.1% leap by the Russell 2000, which tracks the smallest public companies in America. Moreover, smaller firms, owing to their limited international trade exposure, may be less susceptible to the adverse effects of potential trade disputes, and expectation so of leniency towards mergers and acquisitions could benefit shareholders of smaller target companies.

A reduction in regulatory burdens could foster a more favorable business climate for technology companies. It was anticipated that Ms Harris would continue the efforts initiated by the prior administration to impose stricter oversight on artificial intelligence, including a mandate for companies to disclose information about their AI models. However, it is expected that Trump will rescind this requirement. Nevertheless, heightened scrutiny concerning data privacy and antitrust matters may adversely impact large technology firms, resulting in a mixed impact.

Crypto Renaissance

Source: Pixabay

The crypto industry was under siege from the previous administration’s heavy-handed regulations, including rules targeting transparency. But the tide has turned. The new administration’s pro-crypto stance has ignited a crypto bull run. The world’s largest cryptocurrency is soaring past $90,000, and the total crypto market value has hit a three-year high of over $3 trillion. Binance’s CEO is hailing this as the start of a “golden era” for crypto.

Energy Industry Overhaul

The incoming administration intends to reorganize the regulatory landscape for the energy industry. This includes granting energy companies greater latitude to drill for oil on federal lands and lifting the moratorium on the export of liquefied natural gas. Nevertheless, this policy shift, often characterized by the slogan “drill, baby, drill,” may not substantially increase production. Investor skepticism, stemming from past debt-fueled drilling sprees, has led to a focus on capital discipline and return maximization, prompting a need for higher oil prices. Additionally, subdued global demand, particularly from China, has contributed to oversupply in the market.

The financial industry is expected to experience several significant changes under Donald Trump’s administration. Trump is likely to continue his previous approach of reducing regulations on financial institutions placed on banks after the global financial crisis of 2007-09. This could lead to increased risk-taking by banks and financial firms, potentially boosting profitability but also raising concerns about financial stability. Big banks such as Bank of America climbed by 8% on 6^th November.

The impact of Donald Trump’s administration on Detroit’s gas-guzzlers, particularly in the context of the automotive industry, is likely to be significant. Trump is expected to roll back stringent fuel economy and emissions standards that were implemented during the previous administration. This could lead to a resurgence in the production and sales of larger, less fuel-efficient vehicles, such as SUVs and trucks. The Trump administration may prioritize policies that bolster domestic auto manufacturing, potentially benefiting auto companies. Moreover, any tariffs or trade restrictions on foreign vehicles could protect domestic manufacturers from competition, allowing them to maintain or grow their market share for larger vehicles.

Regulatory Changes in Finance and Manufacturing

Trump is likely to continue his previous approach of reducing regulations that affect manufacturing. This could lead to lower compliance costs for manufacturers, allowing them to increase production and potentially hire more workers. Trump’s administration is expected to maintain or implement tariffs on imported goods, which could protect domestic manufacturers from foreign competition. This might benefit U.S. manufacturers. The emphasis on “America First” policies may encourage manufacturers to shift supply chains back to the U.S., potentially reducing reliance on overseas production and creating jobs domestically. If Trump prioritizes infrastructure projects, this could lead to increased demand for materials and services from American manufacturers, boosting their revenues.

Read: The Art of Balance: Why Diversification is the Key to a Healthy Investment Portfolio

Overall, the industry under Trump’s administration is likely to see a shift towards deregulation and tax cuts, which could enhance profitability for institutions. However, potential risks associated with increased market volatility and changes in consumer protections will require careful navigation by investors and financial professionals.