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Your guide to what the 2024 US election means for Washington and the world
At the moment, global investors are reeling from at least two major surprises associated with Donald Trump. The first is the magnitude of his victory. While many (including me) expected him to win, few expected such a crushing victory, or the extreme tone of his initial appointments.
The second surprise is the markets. Not only have US stock markets hit record highs, but other risk assets have soared, with Bitcoin hitting a record high of $90,000.
Can it continue? Financial history suggests it can. “When the stock market rises immediately after an election, it tends to do well over the next year,” says Sung Won Sohn, an independent analyst. “There are solid reasons for optimism.”
He may be right. But I think there are at least seven points that investors need to consider now if they want to continue to “trade Trump.”
American immunity. Before the election, US stock markets were expensive by global standards, pricing in higher future growth and earnings. Now even more so. Such an exemption would be justified if growth spurred by Trump’s promised tax cuts, deregulation and home-shoring policies. Never underestimate the power of “animal spirits.” In fact, consumer confidence among Republicans is already up and the American public seems willing to accept risk, while the Europeans are not. But it also means that US equities will be at risk if there is a recession, geopolitical shocks or Trump’s policies change.
Sectors are important.. Trump’s picks are fueled by fossil fuel stocks (he loves the “drill baby, drill” mantra), Silicon Valley executives who have backed him, steel (which would benefit from tariffs) and bank stocks (due to regulatory loosening). (due to) should help. So much for renewable energy (all those threats to green subsidies), pharma (Trump’s anti-science, anti-price-goal rhetoric) and sectors that depend on streamlined global supply chains.
Beware Trump’s Tudor Court. The president-elect’s management style has always been “unconventional” (to put it politely): he exercises control by destabilizing opponents and allies alike, while power hierarchies rest on personal access. . No wonder former U.S. Sen. Max Box told company leaders this week that you need to have access to that administration “with a lobbyist or someone else” to thrive. Ignore Trump’s rhetoric about “draining the swamp.” Expect an increase in assets linked to courtiers like Elon Musk.
“Friendshoring” is no longer friendly.. Most investors already know that the potentially highest cost of the U.S.-China trade split has been excessive bilateral hostility toward China. Few have appreciated the fact that Trump’s advisers want to stop companies dodging tariffs by operating in “friendly” locations. Noting that the North American Free Trade Agreement must be renegotiated by 2026, Nikki Haley told company leaders this week that if they’re doing business in Mexico or Canada, “they should start looking at that.” Should give what their plan Bs are”. Trump allies told me that trade with Germany and France would also be at risk.
See $35tn debt. Yes, it seems obvious. But the risks surrounding Treasuries can’t be overemphasized, as bond market oversight could be the biggest (or only) check on Trump’s power in the year ahead. An important number to know is $9tn, or how much Treasuries should roll over next year. Currently the markets seem calm. But they can’t stay that way if Trump’s team actually follows through on its campaign promises: namely, weakening the dollar, imposing inflationary tariffs, massive tax cuts and reducing Fed independence. We learned this week that the U.S. monthly deficit hit $257 billion in October, its highest level since the pandemic, and that inflation is rising again. Some of Trump’s advisers — such as Scott Besant and Kevin Haste — understand the risks well and want to contain them. See if they can.
Investors should also expect emerging market pain.. The dollar just hit a six-month high, never mind campaign promises to weaken the currency. If this continues, the tariff fight will intensify and the emerging market countries will suffer a debt crisis.
Hedge, hedge, hedge — with bitcoin or anything else. Bitcoin’s fundamentals haven’t changed: As economic sociologist Corey Kalskin notes, it’s an oddly dogmatic phenomenon with limited practical use. But since Trump is pro-Bitcoin, it’s now a good portfolio hedge. So is gold, with inflationary risks and (most importantly) the fact that anti-Western countries are diversifying away from the greenback into gold. Buying some “real” asset — say, timber — makes sense even given the geopolitical risks, and the fact that it’s the single most surprising thing Trump could do doesn’t come as a surprise.
Above all, the important thing to understand is that one cannot “trade Trump” just by using the type of asset valuation models taught in finance courses. Savvy investors will also need to understand psychology, anthropology and history, whether it’s 1980s Reaganism, 1930s protectionism, 19th-century robber barons or Tudor royal courts. Those periods were often ugly. However, savvy — or cynical — players made a lot of money. Now it will happen again.
gillian.tett@ft.com
