The recent US election outcome has already made waves, sparking discussions around the impact on international markets and potential changes in economic policies. With Kamala Harris representing the Democrats and Donald Trump standing for the Republicans, the implications of a win for either candidate would carry potential ripples across international markets. Now that we know that Donald Trump won, we can start to speculate on how the new administration might influence the global economic landscape.
President Trump: Potential Impact on International Markets
Economic Overview
Trump’s second term as president will likely bring more aggressive changes, emphasising tax cuts, reduced regulation, and a stronger stance on trade. Trump’s policies are generally business-oriented, with the intention of reducing corporate taxes and loosening regulations, which may benefit certain sectors but could introduce more volatility.
Impact on Taxes and Spending
Trump aims to reduce corporate taxes, potentially down to 15%, and make personal income tax cuts from the 2017 Tax Cuts and Jobs Act permanent. These measures may increase corporate profitability and support equities, although they could also lead to larger fiscal deficits. Market Impact: Significant, with potential for boosted equity markets and sector-specific impacts, particularly favouring large corporations and US-based manufacturers.
Trade and Tariffs
Trump’s approach to tariffs is more intense, with proposed tariffs of up to 100% on imports from China and additional tariffs on European goods. These tariffs could drive inflation higher, impact consumer spending, and create short-term market volatility. Market Impact: Substantial, with increased inflationary pressure, a strengthened US dollar, and potential equity market fluctuations.
Regulation and Monetary Policy
In line with previous policies, Trump will likely pursue a reduction in regulatory constraints, which could be beneficial for equities. However, his desire for greater influence over the Federal Reserve raises concerns about the independence of monetary policy. Market Impact: Positive for equities due to regulatory cuts, but potentially negative for bond markets if Fed independence is questioned.
Summary of Market Implications Under a Trump Administration
The Trump administration’s policies are more likely to generate market volatility. While his tax cuts and deregulation could support corporate profits and equities, aggressive tariffs and potential changes to Federal Reserve independence could create uncertainty and impact investor confidence.
Other Market Impacts Following the Election
Congressional Control and Policy Enactment
The ability of any party to enact policies will depend heavily on control of the House and Senate. A unified government (red or blue wave) could expedite the legislative process, though split control would likely lead to gridlock. Market Impact: Split control generally favours stable markets, with more significant market movement possible under unified control.
Economic Implications of a Red or Blue Wave
A red wave, where the Republicans control the presidency and both houses of Congress, is considered more likely due to Senate vulnerability. This outcome could enable the Republicans to pass policies more easily, potentially impacting markets with bolder initiatives. A blue wave would similarly facilitate Democratic policies, though these may be more moderate in scope. Market Impact: Increased market activity is possible with unified control, particularly in response to tax and spending decisions.
Historical Election Trends and Market Volatility
Historically, the markets often react with heightened volatility around US elections, with split Congress control being generally favourable for equities. Data from previous election cycles indicates that a balanced Congress provides the best environment for stable market growth, while unified control can lead to short-term fluctuations as investors respond to policy changes.
Conclusion
The outcome of the 2024 US election is set to shape international markets significantly, where Donald Trump’s return could introduce bolder shifts, especially in trade and regulatory landscapes. For investors, the key as always is to stay informed and adjust strategies where necessary as policies unfold. To navigate these changing conditions and protect your investments, reach out to Priority Advisory Group for personalised advice tailored to your financial goals. You can call us on 1300 349 188 or visit our website: www.priorityag.com.au