US Election: Market Commentary

8:00 AM CET

Parsing the Trump comeback: Key takeaways

Mike Mullaney, Director of Global Markets Research

Donald Trump made history as the second candidate in US history to win non-consecutive presidential bids. The margin of victory was more decisive than expected, and Trump is set to become the first Republican to win both the electoral college and popular vote since George W. Bush in 2004. Politically, the composition of the US House of Representatives is crucial. If Democrats regain control, it will be harder for the GOP to advance key agenda items. The final outcome of many close races remains unknown. Republicans now control the Senate, with the final count potentially reaching 54 seats, making cabinet nominations easier for Trump and impacting the Supreme Court.

On policy, Trump campaigned on higher tariffs, but achieving this without a cooperative Congress is uncertain. China is likely the only target for consensus. Tax cuts for corporations and an extension of the 2017 personal tax cuts will be hot topics in the new year, depending on Congress’s composition.

Regarding immigration and national security, deporting 20 million undocumented migrants is unlikely due to logistics and cost. Immediate tasks will focus on slowing migrant flow, deporting those with criminal convictions, and reinforcing the southern border wall. Financial support for Ukraine is expected to change, given Trump’s promise to end the war in Ukraine on day one. Both President Zelensky and PM Benjamin Netanyahu have reached out to Trump, hoping to gain favor before he returns to the White House.

Yesterday’s Trump victory will have significant political and financial market impacts. Trump's agenda favors stocks over bonds and the US over Europe and emerging markets. Within emerging markets, India is preferred over China, especially if tariffs are introduced. In North America, Canada is favored over Mexico due to potential immigration policy tensions. The US dollar is expected to rally under Trump, making it a preferred currency in short-term FX trades.

Value stocks, small caps, and high-beta market segments are likely to appreciate. Sectors benefiting from Trump’s plans include financials with banking deregulation, traditional carbon-based energy companies, small/mid-cap information technology, and consumer discretionary. Geopolitical risks, which contributed to Trump's victory, could lead to increased asset price volatility, particularly in the VIX and MOVE Index as Treasury rates adjust to new political realities.

16:00 PM CET

A boost for US corporate earnings and domestic production

Brad Brezinski, Head of International Investor Relations & Distribution Boston Partners

As confirmed by multiple outlets, Donald Trump has secured a second term in three Presidential cycles and there remains no paths left for Kamala Harris to contest the election, given the dominant showing by the Republicans on Election night. Trump secured nearly all battleground states and made up significant ground in traditional Democrat strongholds such as New Jersey and New York. Trump is headed back to Washington DC, this time with a different cast of supporters and advisors as he was joined on stage last night by a host of media, sports and business leaders, in addition to his running mate JD Vance and family. Kamala Harris is expected to speak later today and given the margin by which Trump is leading across even the closest states, anything but a concession speech would be surprising.

The full makeup of the US government is still in the balance but it is known for sure that the Republicans will take over the Senate, flipping at least three seats and securing the majority of the 100-seat chamber. The House of Representatives remains undecided but given national voting trends, odds are better this morning that the Republicans will hold the House than compared to polling expectations before the election.

The control of the Congress would give the Republicans a mandate and more importantly, a platform to enact significant legislative changes. This outcome, a Republican wave, could lead to more long-term volatility as the market cannot rest assured that infighting between the Democrats and Republicans would limit any significant policy changes. More votes are to be tabulated for the House and clarity should come today and tomorrow as to whether the Republicans have pulled off a sweep.

Markets have reacted positively. Before the open the S&P 500 was up over 2% with a specific focus on US small and mid caps (up almost 6%), Bitcoin (up nearly 7%), Tesla (given Elon Musk’s involvement with Trump’s campaign, up 12%). Areas seeing weakness included international equities, oil, gold, Treasury bonds (yields rising) and Chinese equities. Broadly a Trump victory is expected to boost corporate earnings, focus on domestic production through his promised tariffs and to aid sectors such as energy (carbon-friendly), finance (deregulation) and materials.

In the long run, the impact from tariffs and Trump’s expected tax cut extensions may have the result of significant increases to the US deficit and impacts on inflation, but the market will wait to see what were merely campaign trail talking points versus serious action points that will be the focus during the start of Trump’s term in January 2025.

14:30 PM CET

The impact of Trump’s win on thematic investing

Ralf Oberbannscheidt, Global Head of Thematic Investing

Donald Trump’s victory and the flipping of the Senate into Republican hands will have repercussions for thematic investing. Here’s what we expect for four of our thematic strategies.

Smart Energy strategy
If the Senate and House remain divided, significant changes to the IRA and investments in renewable energy will be difficult. Some changes could be made, but a complete overhaul is unlikely. BloombergNEF estimates that USD 110 billion out of the USD 113 billion of factory investments tied to renewables and EVs have gone to Republican-leaning or swing states. According to Morgan Stanley, 80% of clean energy projects over USD 1 billion are in Republican-led Congressional districts, creating between 150,000 and 300,000 jobs since the IRA was passed. The Production Tax Credit (PTC) and the Investment Tax Credit (ITC) have historically had bipartisan support.

There is likely to be increased support for fossil fuels and significant reductions in environmental regulations. Regardless of federal action, many states and local actors could continue to support renewable energy and climate policies. History has shown that a favorable or unfavorable macroeconomic environment influences the development of renewable stocks more than who is President.

Sustainable Water strategy
The US water industry receives funding from federal, private (commercial), and state/local governments. Private funding from companies and businesses is unlikely to be significantly affected by the US Presidential election outcome. Water infrastructure investments typically occur at the state and local levels, driven by regional needs and regulatory requirements. US states receive funding from water bills, taxes, and federal contributions, with federal funding playing a crucial role.

The Republican victory is likely to impact federal funding and regulation. Comprehensive reforms planned under the IRA are likely to be hindered, and there may be a potential slowdown or reassessment of the USD 4.7 billion earmarked for water-related initiatives.

Smart Mobility strategy
In the US, the EV market is impacted by multiple layers of regulation, including EPA emissions rules, President Biden’s target of 50% EV penetration by 2030, and the IRA. In March 2024, the EPA introduced new standards for models brought to market in 2027 and later, aiming for a nearly 50% reduction in GHG emissions compared to 2026.

The IRA includes a direct EV subsidy (Clean Vehicle Tax Credit, or CVTC) to increase EV adoption and reshoring incentives for the EV value chain. The Advanced Manufacturing Tax Credit (AMPC) introduced a 45 USD/kWh incentive for domestic cell and module production. The government will also finance 10% of the cost of domestic production of critical minerals and electrochemically active materials.

A Trump administration is unlikely to touch the AMPC due to investments and job creation benefits in Republican states but may eliminate purchase subsidies for EVs. The strategic direction of the IRA to decarbonize the transportation industry while relying on domestic and allied countries resonates with Trump.

Healthy Living strategy
The US market significantly contributes to the global healthcare sector’s profitability, and regulatory changes can deeply impact the sector. With Trump’s victory and the Senate turning Republican, Medicaid expansion could stop and likely reverse, negatively impacting hospitals and managed care companies exposed to Medicaid. Funding pressure for Medicaid could increase.

The IRA introduced significant drug price cuts in Medicare. A Republican administration could negotiate only insignificant net-discounts in future rounds, benefiting some of the big pharmaceutical companies. The first wave of these drug price cuts will go into effect in 2026. Renewed efforts to derail the Affordable Care Act (ACA) are unlikely given its popularity, but changes would negatively impact the sector due to reduced medical use.

12:30 PM CET

The impact of the US Election on emerging markets should not be overestimated

Wim-Hein Pals, Head of Emerging Markets team

The US remains by far the largest economy in the world, and its election results will have a global impact. However, we should not exaggerate the effect. It’s true, a Trump victory would generally not be good for stocks in emerging markets. This is mainly due to the protectionism that Trump advocates and the call for higher import tariffs, which particularly affects a country like China. Stocks there are expected to underperform the most. Coincidentally, the National People’s Congress (NPC) is meeting this week. After Trump’s win, Chinese authorities might resort to the long-awaited ‘bazooka’ to stimulate the sluggish economy.

So far, the stimulus measures have been limited, keeping the budget deficit in check. Using the ‘bazooka’ would relax budget discipline and give the economy a significant boost. Whether this is effective and to what extent it exacerbates the debt problem is a concern for later. Mexico will also suffer from potential import barriers. Its open economy thrives on low trade tariffs and the limited obstacles for US companies to set up factories with comparatively cheaper labor costs.

Are there countries and economies that will be little affected by a Trump administration? Yes, this includes the more autonomously operating economies in South America, as well as India and Southeast Asia. These countries likely have the least to fear from increasing protectionism. They have large domestic markets and relatively little export to the US. Overall, Trump’s election victory seems unattractive for the entire emerging markets spectrum in the short term. Particularly in Central Europe, Mexico, and parts of Asia, there is a high chance of a stock market correction.

However, let’s not forget that over the past four years under the Biden administration, import tariffs have been widely introduced or increased. Moreover, the number of (mainly Chinese) companies on the banned list has risen to unprecedented levels. Therefore, in the long term, a new administration in Washington DC is certainly relevant but not a dominant factor for free world trade, and the impact on some major emerging countries should not be overestimated either.

10:45 AM CET

Podcast: US Election - The impact on equities, bonds, currencies and commodities

Colin Graham, Co-Head of Sustainable Multi Asset Solutions

In this podcast multi-asset investor Colin Graham and fixed income portfolio manager Lauren Mariano discuss the impact of the US Election on various corners of the financial markets.