A historic return for Donald Trump
A historic return
for Donald Trump
Former US president, Donald Trump has managed to do something only one of his presidential predecessors had done before him. On Wednesday, he won the US presidential election so will now return to the White House for a second term post his loss of office to President Biden in 2020. For historians, in 1892 a New York Democrat called Grover Cleveland was also re-elected post losing a second election to make him the 22nd and 24th US president. Notably, Cleveland could have run for a third term at the time but decided not to. The 22nd Amendment to the United States Constitution, passed in 1951, now only allows a president to serve two terms so Mr Trump will not have that option.
A Red Trifecta on the cards?
The Republican Party has not only won back the presidential seat but, importantly, it also appears likely to gain control of Congress as well (as at the time of writing). It has secured a slim majority in the Senate, but a majority nonetheless. It also looks highly likely that the Republicans will have a majority in the House of Representatives too, although this has not been confirmed. If the Republicans have control of the presidential seat and Congress, so a red trifecta in effect, it means that it will be significantly easier for the new administration to put through its legislative agenda around tax, energy and regulatory plans. Although a point to note is that tariffs were changed by Trump in 2018 under the guise of National Security, so some changes can be achieved without the need for congressional approval i.e. by a presidential decision.
Good news for markets …
Close elections result in uncertainty, which is something that financial markets do not like. Therefore, an election result in itself provides greater certainty so is a general market positive. In addition, with the possibility of Republican control of Congress looking high there will be greater certainty on policy agenda. It would be more difficult to pass its legislative agenda if control of the houses were split between the two parties.
The table below shows our initial take on some of the key policy areas. In short, we would say the election result is a positive for financial markets, in the short term at least.
Source: Artorius
An earnings uplift on the horizon?
At a corporate level, extending the reduced corporation tax rates implemented by the 2017 Tax Cuts and Jobs Act legislation, which is due to expire in 2025, and then pushing through additional tax rate cuts for corporates would provide a step up in future profits. We highlight in the chart below that the uplift in corporate post-tax profits across the S&P 500 (measured by Earnings Per Share) was approximately 10% in 2018 post the enactment of the 2017 legislation.
S&P 500 Historic Earnings Per Share
Source: Artorius, Bloomberg
The longer-term impact is less clear due to the potential of a return to higher inflation combined with higher levels of public sector borrowing, both of which are likely to keep interest rates and bond yields higher than they otherwise may have been.
Keeping an eye on the inflation threat
As with any significant change in control there is a lot of ifs, buts and maybes. Financial markets are complex and driven by many variables. However, if we were to try and simplify our view for now, we would say the election of Donald Trump is broadly a positive for equity markets (US at least) and other risk assets. However, we and many other investors will now likely be trying to assess the inflationary threat in the US going forward.
Two areas driving this expectation, and where early changes may be implemented, are on tariffs and the deportation of illegal immigrants. It is already notable that the market has effectively decided that inflation is a real risk. To counter that inflationary risk the Federal Reserve is now expected to cut interest rates by less than previously anticipated. The chart below highlights the change in the market’s expectation for the US central bank interest rate. As can be seen, there has already been almost a full percentage point change in US interest rate expectations in the second half of 2025.
US Interest Rate expectations: November 2024 compared to October 2024
Source: Artorius, Bloomberg
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We remain fully invested in US equities
Our roles as wealth advisers and wealth managers is to protect and grow our clients’ wealth. Trump is a polarising character who strongly divides opinion. However, his election will likely see beneficial outcomes for US corporate profitability. Elsewhere, we note there is a possibility of another snap election. This time in Germany following the collapse of the coalition. For the time being, we remain fully invested in US equities, and will make decisions driven by the outlook for interest rates and profits.
Phil Carroll
Head of Alternatives
Important Information
All expressions of opinion reflect the judgment of Artorius at 8th November 2024 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions.
Artorius Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Artorius is a trading name of Artorius Wealth Management Limited.
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