Trump 2.0
The states went red and the markets went green. But in the long run, not all Trump trades will be sustainable.
In the end, it was a landslide. Donald Trump’s victory over Kamala Harris pushed U.S. stocks to record highs, with more than $1.6 trillion in market cap added on 6 November – the 5th largest single-day jump in history.
Bitcoin also reached a new all-time high, as did the U.S. dollar. Gold retreated 0.8%. It’s no wonder that risk assets were still in favour, while spot gold and the dollar changed course a day later, after the Federal Reserve delivered another 25 basis point rate cut. ‘No,’ was the response Fed Chair Jerome Powell had when asked if he would resign at Trump’s request, adding that the incoming president can’t legally fire him either.
Powell also said the election wouldn’t influence policy, but that's easier said than done. Trump has promised tax cuts, a clampdown on illegal immigrant workers and massive tariffs on Chinese imports – all things that could prove inflationary in the long run. And the Fed’s favourite tool to fight that rising CPI number? Higher rates.
The long-term outlook for the economy matters because, in the short term, it really seems almost everything went up. We can agree that the price action surrounding Trump Media & Technology Group ($DJT) had less to do with its earnings report than with its newfound status as a meme stock.
The selloff in clean energy firms like Enphase Energy ($ENPH) and First Solar ($FSLR) might be more justified, based on Trump’s proposed policies. On the opposite end of that trade were oil and gas players like Baker Hughes ($BKR), up 13% since last week.
Given that we’re actually in the cutting phase of the interest rate cycle, the rally in banks like JPMorgan ($JPM) and Wells Fargo ($WFC) seems a little counterintuitive. But the prospect of looser regulations and lower corporate taxes was enough to drive price action there.
Perhaps no one is more enthused by the prospect of deregulation than Tesla ($TSLA) CEO Elon Musk. He’s hedged his bets on Trump (backing him with more than US$130 million) and is now hoping those bets will pay off. The market thinks they will: Tesla has rallied 30% since election night and hit a trillion-dollar market cap for the first time.
Trump isn’t a fan of EV tax credits, but tariffs on Tesla’s competitors mean the U.S.-based EV maker could come out ahead even in the absence of alternative energy subsidies. Musk has also landed himself a new role as head of the government’s so-called efficiency commission, so we’ll likely learn the true extent of his influence on the administration down the track.
At the end of the day, while perceptions of a more business-friendly environment are driving market momentum, investors with a longer time horizon won’t be as easily convinced. The trades that trump the market in the long run might not be the ones running hot right now.
