Trump’s Return

Trump Returns: A New Market Landscape Takes Shape

With Donald Trump officially set for a second term in the White House, the global financial landscape is rapidly adjusting. Investors are particularly eyeing the U.S. dollar, equities, and cryptocurrencies, all of which are benefiting from the election outcome. As trends predicted Trump’s victory, the U.S. dollar surged and Bitcoin reached a record high, marking a clear shift in market sentiment. But beyond these immediate reactions, what are the broader implications of Trump’s policies for the economy, inflation, and global trade?

Currencies: A Stronger U.S. Dollar Ahead?

The U.S. dollar has been a key beneficiary of Trump’s victory, soaring by around 1.4% against multiple global currencies, including the euro, pound, and yen. Edison Research suggests that Trump’s policies will likely lead to higher inflation and economic growth, prompting the Federal Reserve to maintain higher interest rates to prevent overheating. This environment is bullish for the dollar, which analysts predict could rally 3% post-election.

Citi analysts anticipate the euro could face a sharp decline, while the Chinese yuan may also struggle as trade tensions under Trump’s protectionist policies intensify. Trump’s plans to impose tariffs on European allies—especially in defense spending—would further boost the dollar’s appeal as global markets adjust to his trade policies.

Bitcoin & Cryptocurrencies: A Winner Under Trump

Bitcoin has surged to a new all-time high, jumping by $6,000 to $75,371.69, reflecting market optimism about Trump’s stance on cryptocurrencies. Trump has previously pledged to make the U.S. the “Bitcoin and cryptocurrency capital of the world”, a stark contrast to Biden’s administration, which has cracked down on the industry. The victory is seen as a win for crypto investors, as Bitcoin and other digital assets gain favor amid growing hopes of less regulation and more friendly policies under a second Trump term.

Stocks: A Favorable Environment for U.S. Equities

With Trump set to lead the country once again, U.S. stocks have seen a strong rally. Tesla shares, in particular, soared after the election, reflecting investor enthusiasm for Trump’s pro-business policies. The company’s stock surged by 6.53%, reaching a high of $265.49 in after-hours trading. Trump's economic agenda, including tax cuts and less regulation, has investors bullish on sectors like banks, technology, defense, and fossil fuels.

Goldman Sachs estimates that Trump’s corporate tax cuts (a reduction to 15%) could boost S&P 500 earnings by 4%, though it remains to be seen how much of this will survive the Congressional process. In addition, his aggressive stance on oil production and immigration policies suggests that inflationary pressures may drive stronger growth, which should be positive for equities.

However, the effects of Trump’s trade policies could weigh on multinational corporations, especially those exposed to China and other global markets. Sectors like semiconductors, autos, and clean energy could see volatility, as Barclays warns of a potential “high single-digit” drop in European earnings if trade conflicts escalate.

Bonds: Rising Yields and Debt Concerns

Trump’s victory is likely to keep bond yields elevated, as concerns about the scale of U.S. government debt and fiscal deficits grow. His spending proposals—estimated to add $7.5 trillion to the deficit over the next decade—could push borrowing costs higher. As inflationary pressures build, the Federal Reserve may be forced to hold interest rates higher, limiting its ability to cut rates in the near future.

This scenario would suppress growth in Europe and Asia, as trade tensions and tariffs weigh on these economies. Analysts expect global yields to rise as a result, with the euro, yen, and Swiss franc coming under pressure. U.S. Treasury yields could climb higher as investors adjust to the realities of a Trump-driven economic landscape.

Commodities: Oil, Gas, and Trade Wars

The commodities market is set for significant changes under a second Trump term. His focus on maximizing U.S. oil and gas production—via expanded federal leasing and rolling back environmental regulations—could keep U.S. West Texas Intermediate (WTI) crude prices relatively low. However, his commitment to sanctions on Iran and a robust supply of domestic crude could contribute to price volatility in global oil markets.

Soybeans are another commodity to watch, with trade tensions with China continuing to affect the U.S. agricultural sector. As China fails to meet commitments from the 2020 trade deal, U.S. soybean exports are down, and prices have fallen by 25% from last year. Trump’s protectionist policies could exacerbate these issues, pushing agricultural prices lower while intensifying the trade conflict with China.

Emerging Markets: Vulnerable to Trade and Tariff Tensions

For emerging markets, the Trump victory could bring a mixed bag. Mexico, in particular, could face severe economic headwinds due to Trump’s proposed tariffs of up to 200% on vehicle imports. The Mexican peso is at risk of weakening past 21 to the dollar, a level not seen in over two years. Additionally, JD Vance, Trump’s vice-presidential candidate, has proposed a 10% tax on remittances, which could hurt many Latin American economies reliant on this source of income.

While Mexico faces headwinds, emerging economies with strong domestic growth stories, such as India and South Africa, could see capital inflows, as investors seek refuge from global volatility. Chile, a major producer of copper and lithium, may benefit due to the irreplaceable nature of its exports, despite global tensions.

What’s Next for Global Trade?

Trump’s foreign policy will likely continue to emphasize nationalism and protectionism. His trade policies will put pressure on multinational corporations, while defensive sectors and U.S.-focused businesses are likely to thrive. Defense stocks could benefit, as Trump has made it clear that European allies need to spend more on defense. Meanwhile, China and other nations could face growing tariffs, potentially sparking a new round of trade tensions that affect global supply chains.

For investors looking to navigate this shifting landscape, focusing on domestic U.S. stocks, particularly in sectors like energy, technology, and financials, may prove rewarding. At the same time, emerging markets that are less reliant on global trade could provide safe havens from the growing volatility in international markets.

In Conclusion: Markets in Flux, Opportunities Aplenty

The return of Donald Trump to the presidency promises a period of market volatility but also significant opportunities, particularly in U.S. equities, cryptocurrencies, and domestic sectors such as energy and financials. The stronger dollar and higher interest rates are expected to persist, while trade tensions and inflationary pressures will add complexity to the global economic landscape. Investors should remain nimble, closely monitoring sector performance and adjusting strategies as the full impact of Trump’s policies unfolds.

Thank you for reading! Stay tuned for more insights in our next issue, where we continue to explore the global financial shifts in the aftermath of the election.

Disclaimer: This newsletter provides general information and is not intended as financial advice. Always consult with a financial advisor before making investment decisions.