The US election was forecast to be too-close-to-call. But polls, political pundits, and economic indicators again failed to anticipate the will of voters. Former President Donald Trump will become the 47th President of the United States — only the second president in history, since Grover Cleveland in 1892, to serve with a gap of four years between terms.
President-Elect Trump and the Republican Party delivered a resounding election victory. Trump earned 312 Electoral Votes, won the popular vote, and triumphed in all seven swing states. Republicans flipped the Senate from Democratic control and are on the verge of gaining a slight majority in the House of Representatives.
The Red Wave provides the incoming Trump Administration and Republican-controlled Congress a mandate from voters to advance their policy goals. Yet, the potential for only modest majorities in both chambers of Congress, massive fiscal deficits, and strong opposition from blue state governors likely means that the nasty division and gridlock that has defined US politics in recent years will continue throughout Trump’s second term.
If there’s one thing that President-Elect Trump has proven in recent years and throughout his campaign, it’s that he’s ready to fight.
Change Sparks Relief Rally, Trump Bump
There was a free and fair US election on November 5. A clear winner quickly emerged. The election results won’t be contested. There will be a smooth transition of power. As a result, at least part of the market’s post-election rally has been driven by relief that some of the worst possible outcomes were avoided.
There was also very clearly a Trump Bump. Stocks soared. Perceived beneficiaries of expected Trump policies — deregulation, lower corporate taxes, and trade protectionism — such as Financials, Energy, small caps, and Bitcoin led the gains. The Russell 2000 rose 5.8% compared to the S&P 500’s 2.5% the day after the election.1 Bitcoin surged 8.5%, hitting an all-time high of $75,395 just an hour before the Associated Press called Pennsylvania for Trump.2 It now sits at $88,111.3 While Bitcoin’s rally correlated with the rise in risk assets, the Trump administration is expected to create a friendlier regulatory environment for cryptocurrencies and digital assets.
Bond yields surged temporarily in the aftermath of Trump’s victory. This was partly driven by asset allocators selling bonds to buy stocks, which put downward pressure on bond prices and pushed stocks higher. Fears that Trump’s policy proposals would substantially increase already ballooning deficits and result in rising inflation also sent bond yields briefly higher.
What to Expect from Trump 2.0
Following Trump’s inauguration on January 20, his administration is likely to prioritize four policy areas in his first 100 days. Three of the four policy areas can largely progress without approval from Congress.
Deregulation. Trump pledged on the campaign trail to eliminate 10 regulations for every new regulation, beating the two-for-one goal he set in his first term.4 Delivering on such a bold goal would likely require some Congressional support. If Republicans win the House to take control of both the executive and legislative branches of government, they could quickly roll back recent federal agency regulations from the Biden administration by using the Congressional Review Act, which allows Congress to overturn certain federal agency rules within 60 legislative days of it being issued.
Trade Tariffs. Trump’s goal with tariffs is to boost American manufacturing. But it’s unclear if tariffs will be an effective means to that end, because they often increase costs for companies and consumers and provoke retaliation. The issue won’t be debated, however, because the Trade Expansion Act of 1962 grants the president the power to impose tariffs in response to threats to national security, something Trump did in his first term. While he’s mentioned 10% to 20% on every import and 60% on all Chinese imports, Trump’s also suggested he may not enact tariffs right away — perhaps making them negotiating tools rather than trade policy.
Immigration Reform. Trump has promised to secure the border, but there’s a lot that we don’t know about what his administration’s immigration policy will look like. Should mass deportations occur, they could result in labor supply/demand imbalances and inflation. Trump has appointed Tom Homan, the former acting director of U.S. Immigration and Customs Enforcement, as his “border czar.” Trump can also use executive orders to block people from entering the US if national interests are at stake as he did in 2017.
Tax Cuts. It will take cooperation with Congress to advance Trump’s pledge to extend all the tax cuts from his signature piece of legislation, the 2017 Tax Cuts and Jobs Act. Trump also has called for lowering the corporate tax rate to 15% for some companies and eliminating taxes on tips and Social Security income.
Keeping Investment Portfolios Great?
Here are a few thoughts for investors considering making portfolio adjustments that align with the Trump administration’s goals.
Less Regulation: Banks and innovative technology firms may benefit from less regulatory scrutiny and more crypto-friendly regulation.
More Tariffs: Domestic markets, particularly small caps and service-based industries, may be able to better navigate tariffs.
Lower Taxes: Consumer-oriented sectors may benefit from lower corporate and personal taxes.
Strong Defense: Traditional and modern warfare firms, as well as security firms, may benefit from hawkish defense, cyber, and border policies.
Energy Independence: Fossil fuel firms stand to benefit from policies to bolster US energy independence and increase oil auction drilling.
Record Deficit to Create Challenges
It’s estimated that Trump’s policies could add $7.5 trillion to the national debt over the next decade.5 The FY 2024 federal deficit is $1.83 trillion — total government spending of $6.75 trillion less the total revenue of $4.92 trillion. That’s an increase of $138 billion over 2023. A major source of the growing deficit is interest on the public debt, which grew 34% to $950 billion in FY 2024.6
Here, gold could help hedge against deficit risk and a potential increase in inflation.
Importantly, by January 2, Congress must reinstate the federal debt ceiling, which was suspended in 2023. Those negotiations could spark some market volatility. And if Trump’s policies do reignite inflation, the Federal Reserve may cut interest rates fewer times than now expected through 2025.
Focus on Your Long-term Goals
There may be some market volatility as the Trump administration settles in, but strong fundamentals will likely continue to support risk assets. The Q3 earnings growth rate for the S&P 500 is expected to be 5.3% — the fifth straight quarter of growth. And analysts also expect double-digit earnings growth for Q4.7
Longer term, it’s statistically impossible to say the market has performed better under one party than the other. Since 1947, the S&P 500’s average 11% annual price return with a Democrat as president beats a Republican president’s 7.1%. But full Republican control of the White House and Congress has produced a 12.9% return while full Democratic control has averaged 9.3%.8
Ultimately, while voters should be passionate about their candidates, markets care primarily that a presidential race is decided. The data proves that the economy and earnings, not political parties, drive market performance.
As we move into 2025 after a highly-charged, hard-fought Election 2024, we encourage investors to refocus on their own short- and long-term goals with a disciplined, diversified investment approach.
Check out our latest research and insights for timely investment ideas to pursue policy-related shifts.