ROBERT KIZIK, CFA, CAIA
Principal/Sr. Director, Research – Fixed Income
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Americans have voted, and with 295 Electoral College votes, Donald Trump was elected the 47th President of the United States. In addition, Republicans appear to have solidified a “Red Wave” by securing 52 seats in the Senate and positioning themselves to maintain their narrow majority in the House. In this investment perspective, we examine market reactions to the election results and highlight key areas we’re monitoring for future developments.
Market Reaction
As results started rolling in on Election Day, equity futures pointed to a strong opening for the next trading day while bond yields sold off sharply in after-hours trading. These trends held steady the following day, with U.S. equities rallying sharply and bond yields continuing their decline.
U.S. equities rallied across the market-cap spectrum and along key sectors.
- S&P 500: +2.5%
- Russell 2000 Index: +5.8%
- Financials: +6.2% (strong showing in banks)
- Transportation: +7.1% (driven by gains in railroads and trucking)
Non-U.S. equities were flat in local terms; however, strength in the U.S. dollar (USD) resulted in broad losses for U.S.-based investors.
- USD (DXY); +1.6% (on expectations of rising U.S. growth and inflation)
- MSCI EAFE Index: –3% USD, 0.0% local
- MSCI EM Index: –6% USD, –0.2% local
- China, which will likely face the most severe tariffs, overcame initial losses as attention shifted toward a potentially significant stimulus announcement.
U.S. bonds saw a sharp rise in yields.
- U.S. Aggregate Index: –0.7%
- U.S. IG Corporates: –0.7%
- U.S. HY Corporates: +0.1%
- U.S. Long Treasury: –2.4%
Real assets were mixed, despite widening breakeven inflation expectations.
- U.S. REITs: –1.6%
- Clean energy: –6.1%
- Gold: –2.7%
- Natural resource stocks: +2.9%
- Short-term TIPS: +0.2%
Note: One-day returns as of November 7th
Several common factors have impacted capital markets, broadly falling into three different areas: fiscal stimulus, protectionist trade policy, and immigration. Whether these themes materialize through tax policy, tariffs and trade agreements, and immigration restrictions, or other measures, the concern is on the potential inflationary impact. By and large, capital markets responded as anticipated.
Policy Takeaways
As the new administration takes shape, its key policy goals for the first 100 days will become clearer post-inauguration. Early insights into potential policy impacts include:
- Inflationary pressures stemming from tax cuts, tariffs, and immigration policy changes
- Global trade uncertainty as tariffs could lead to tit-for-tax retaliations
- Transaction-based foreign policy resulting in uncertain relationships with allies
- Tension over Federal Reserve independence and leadership
- Heightened geopolitical risks related to Ukraine/Russia, the Middle East, and China/Taiwan
- Regulatory rollbacks
- Reversal of certain Biden-era policies that are unpopular with Republicans
Conclusion
The election is over and as the dust settles and the new administration begins to take shape, visibility will improve. Sentiment on risk assets shifted following the outcome, but it remains to be seen whether the moves reflect a knee-jerk reaction or the start of a sustainable trend. It is important to recognize that valuations—from forward P/E ratios to credit spreads—are stretched and market volatility could remain elevated.
Investment discipline has never been more important. As always, we remain dedicated to helping you navigate an evolving macro and investing landscape and working closely with you to structure portfolios aimed at achieving your long-term investment goals.
All commentary contained within is the opinion of Prime Buchholz and is intended for informational purposes only; it does not constitute an offer, nor does it invite anyone to make an offer, to buy or sell securities. The content of this report is current as of the date indicated and is subject to change without notice. It does not take into account the specific investment objectives, financial situations, or needs of individual or institutional investors. Information obtained from third-party sources is believed to be reliable; however, the accuracy of the data is not guaranteed and may not have been independently verified. Performance returns are provided by third-party data sources. Indices referenced are unmanaged and cannot be invested in directly. Index returns do not reflect any investment management fees or transaction expenses. Some statements in this report that are not historical facts are forward-looking statements based on current expectations of future events and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Past performance is not an indication of future results. © 2024 Prime Buchholz LLC