When it came, Donald Trump’s reelection to the White House as anarchist in chief wasn’t unexpected.
But the scale of his victory – and just how quickly the result was declared – was a surprise.
No wonder markets scrambled to recalibrate in the hours that followed.
The morning in London after the night before saw nearly all risk assets open higher. (Gold was one notable exception).
But as the day wore on, American stocks overwhelmingly prevailed.
US equities ended Wednesday broadly 2% up – and nearly 6% higher for the US small cap index.
But UK and European shares floundered. Indeed the German market closed down for the day.
Tariff-ick
To some extent the market was clearly trying to price in the now-certainty of President Trump – and hence the imminent possibility of some incarnation of his much-touted protectionism and trade tariffs.
For instance, here’s how high-end spirit makers traded over the past few days:
Source: Google Finance
You can see shares in all these companies fell 3-7% the day after the election. If Trump applies tariffs of 20-40% to French cognac, say, then Remy will sell less of it in the crucial US market. So that’s rational.
But note I’ve also included Brown-Forman – the US maker of Jack Daniel’s – alongside the European brands. And it fell too – more than 7% – the day after the election.
That’s equally rational. If the US imposes tariffs then so will its trading partners.
David Ricardo explained 200 years ago why countries do best following free trade principles.
But we live in an era where many people prefer tweets to textbooks, and protectionism and nationalism are back in fashion.
Musky smell
Imposing high tariffs will hurt global trade and make the US a little poorer than it would otherwise have been (although I’d concede the rest of the world will probably come off worse).
One reason the US will suffer is because the dollar will likely strengthen in a more fractious world. This will make US exports less competitive on the global stage, even excluding the tariff tit-for-tat.
Again, any student of economics knows this.
But Trump’s tariffs aren’t really designed to increase wealth. They are for winning votes, and for supporting his favoured industries and companies.
Here’s a striking example of the latter, pitching Tesla against the iShares Global Clean Energy ETF:
Source: Google Finance
Trump says he will roll back environmental initiatives and cut government programmes aimed at driving renewable energy take-up. This should benefit fossil fuel companies. Especially coal miners.
True, it didn’t work out that way last time, for various reasons.
But that’s the ‘Trump Trade’ view.
And here we can see iShares’ global clean energy ETF did modestly puke on Trump’s victory on Tuesday.
Yet at the same time shares of Tesla – a dominant manufacturer of electric vehicles and solar energy products – saw its largest one-day share price gain since the pandemic.
Of course Tesla’s CEO and major shareholder, Elon Musk, pretty much ran Trump’s re-election ‘ground game’ and turned his social media platform X (formerly Twitter) into an electioneering machine. Musk himself many times repeated false election fraud claims.
Given the relative performance of the iShares Clean Energy ETF and Musk’s clean energy and transport company following the result, it seems probable the market is putting more weight on Musk’s political proximity to Donald Trump than on the fundamentals for Tesla versus other similar stocks.
Now, we could debate all day how America ‘won’ the 20th Century.
However I’d contend that a largely meritocratic and competitive capitalist system wedded to a genuine shareholder democracy played an outsized role in pulling it and its citizens ahead.
By contrast, a return to crony capitalism and the robber baron era won’t be in the interests of most Americans.
Trump 2.0: sequel fatigue
All that said, as I write – two days on from election – there are signs the initial post-Trump moves in the markets are waning.
Those drink makers rose today. Gains in Germany are about twice those logged in New York so far.
This suggests the knee-jerk post-election market move was as much a symptom of some traders being out of position and/or hedges being unwound – plus a bit of emotional tumult – than a completely sober repricing of risk and reward.
After all, the only thing we know for sure about a Trump presidency is that it will be unpredictable.
Tariffs, for example, could be implemented at a high level. Or they could just be a negotiating tactic.
The same will be true across the barrage of uncertainty we can look forward to. Whether it be the future of international relations and bodies such as NATO and the UN, to an immigrant wondering if they’ll be deported.
The possible, probable, and unthinkable will only coalesce in the months and years ahead.
Zero sum games
If we are to take Trump and his followers at their word, the election result is a mandate to pursue an America First policy of bilateral agreements, tariffs, and regulatory rollback aimed, they would say, at making America Great Again.
That America is already the richest country in the world and by far its strongest-performing economy – with leadership in most of the key industries including AI, and with the strongest military and nuclear stockpiles – appears not to matter to the electorate.
Maybe after the huge inflation shock of the past couple of years and the hollowing out of American hard industry over the past 30, that’s fair enough, in so far as it goes.
America is an unequal society, and while the average American is much richer and earns a lot more than the average Brit, that hardly matters to Joe Sixpack enviously eying millionaires on Instagram while he struggles to afford a home.
However Trump can’t reverse the technological progress behind so much societal change.
And even in as much as his tariffs might superficially favour certain US groups, they’ll ultimately do more harm than good. Just like last time.
As per the Brookings Institute’s assessment of Trump 1.0:
- American firms and consumers paid the vast majority of the cost of Trump’s tariffs.
- While tariffs benefited some workers in import-competing industries, they hurt workers in sectors that rely on imported inputs and those in exporting industries facing retaliation from trade partners.
- Trump’s tariffs did not help the U.S. negotiate better trade agreements or significantly improve national security.
None of this would have surprised Ricardo.
But what might have raised his eyebrows is that the country with the most globally dominant firms – the biggest winner of the global order that its grandparents and great-grandparent’s forged with their sweat and blood – would now vote against its own economic interest.
A world of pain
If the US does go down the protectionist path, then the forces of Hubris and Irony will one day have their revenge.
Little comfort for those of us caught up in the consequences, admittedly.
Indeed where Trump is correct is that the UK, Europe, and the rest of the free world has benefited enormously from US economic and military leadership over the past 80 years.
If the US retreats, we’ll feel it economically and in our politics and national security. Needless to say Britain looks particularly exposed following our own quixotic decisions of the past few years.
The US can probably coast for a couple of decades however on the momentum of its enormously successful economy.
And if this political movement endures then its leaders can find other scapegoats by the time the costs are clear.
Identity theft
Of course this election wasn’t just about economics. In part Trump’s popularity must be a backlash against the extremes of the progressive agenda over the past couple of decades.
On that note, it might surprise my usual half-a-dozen critics to hear I was noting to friends last week how the Democrats’ website flagged it was fighting for 16 groups – from African Americans to Latinos to Women – but it apparently didn’t see the white male majority among its constituents:
At a time when more American women go to college then men – including for professions such as law and medicine – while the relative earnings of men without a college degree have declined for decades, you can see this could stick in the craw, regardless of your views about the bigger societal picture.
In fact early post-vote analysis suggests many minorities voted for their candidate of choice, rather than the one supposedly prescribed to some identikit community. Lots of Latinos voted for Trump, for example.
I’m all for it. Personally I’m no fan of the extremes of identity politics. We’re all equal individuals as I see it, and while structural inequalities do still exist, an enlightened government can seek to improve things without pitting groups as victims and oppressors, and putting people into boxes along the way.
Some Monevator readers think I lean very left. However as I’ve noted many times before, my own friends think I’m the semi-acceptable face of the right.
In reality I’m that unfashionable 1990s’ middleman – economically a capitalist, but socially a liberal.
That’s because when it comes to both trade and society, I believe the same thing…
…we’re all in it together.
Born in the USA
To conclude, the political shift in the US hardly has me jumping for joy. But there’s not much I can do about it.
For at least the next four years, political risk is back on the table. Especially if you’re an investor in individual companies with any exposure to foreign markets or foreign competition.
We’ll all feel the knock-on effects. From our mortgage rates – Trump’s plans seem inflationary, which will keep US rates higher than otherwise, with consequences for our own interest rate in the UK – to our taxes. For instance we’ll probably have to spend more on defence.
I’ll leave issues such as sleeping at night with an aggressive Russia on the borders of Europe as an exercise for the reader.
Finally, comments welcome, but please focus on the economy and markets.
I know I mentioned identity politics above, but that was because leaving it unsaid would clearly only present half the story.
There’s a vast Internet out there for those who want to go down that rabbit hole.
Botty mouths
On that note, since the election, Monevator comments have been inundated with spam-like postings such as this (identity redacted):
The spam filter identifies them as such. The posters have no prior history of posting on Monevator. They are not on our mailing list. I presume Russian or Chinese bot farms are the source.
But honestly it’s sometimes hard to tell the difference between bot-spam and the bold and radical views of our one or two Blimpian readers. So I’ll delete anything not about global trade, markets, or investing with extreme prejudice for the sake of an on-topic discussion. Save your fingers!
Finally I wish America – a country I’m very fond of – and all her citizens the best of luck.
Starmer is in an interesting place
Outside the EEC
Antagonised the world’s foremost economy with multiple undiplomatic statements by him and his ministers
What could possibly go wrong?
xxd09
Should Starmer sack a few as a show of good faith – probably.
All our politicians should be a little more thoughtful of their comments and how they’ll land in the future, under various future environments.
I sat on the fence regarding taking profits pre budget. I wrongly thought any capital gains tax hike would give us time to sell before coming into force. I also bought Microstrategy and Tesla thinking if trump won it would in someway mitigate my disappointment. My portfolio has jumped with Trump but don’t feel very consoled. I sighed with relief 4 years ago…Time to take another deep breath.
The majority view just beforehand was that the election was very close, with real possibility for disputes about the results (given Trump etc…) . I guess there was a fair amount of relief about a decisive outcome in the stock market response, regardless which side.
Who knows what he’ll actually do in office, like last time round it might not have much relation to the rhetoric. Many tarifs from Trump version 1 remained in place through the Biden period (I know, because I had cause to look some up) – there might be more continuity of policy than one might expect.
Meanwhile, in UK , the share price of an FTSE 250 company drops 60% in one day after announcing an Auditor’s review into revenue recognition, governance etc. . Shades of Carrillion all over again. Of course, we shouldn’t be gambling in single shares… but accounting standards apply to every company in the market, so passive investors should be concerned too.
I think what @xxdo9 is saying is that come January there will be a vacancy for “leader of the free world” and in the past the UK Prime Minister would have been the individual people looked to. But with influence in the EU having disappeared, and influence with other English speaking nations less than it used to be, Starmer is going to have to follow rather than lead.
Biden sent the wrong message to the world with his shambolic retreat from Afghanistan. I think Russia and China had his measure. Trump with his bellicose temperament might delay the invasion of Taiwan. The Chinese economy is in trouble and what is a well tried gambit to get the populace onside ? A foreign adventure. So all in all not much but a weak and fractious Europe is no deterrent to anyone. He might do something about the Red Sea too.
So tarrifs wouldn’t be top of my concerns just now.
Markets: it seems to me that US citizens routinely overestimate the importance of their President’s economic views and policies because (a) they ignore time lags and therefore underestimate the importance of previous administrations, and (b) they somehow forget the separation of powers and therefore the importance of the Congress, the Fed, and perhaps even SCOTUS.
Of course a sufficiently fascist president could ride roughshod over those three but no one has since FDR, have they?
@dearieme — Yes, the separation of powers has held so far, but worth remembering that the US president has absolute go / no-go power as I understand it over nuclear war (the nuclear ‘football’ etc). In that sense the decision could scarcely be more important. I again will leave it as an exercise to the reader to judge 47’s fitness in this respect. I agree with @Mr Optimistic — I’d be more at peace if he was just in charge of taxes and trash collection.
On the other hand, consider the decline of traditional religion. By the Law of Conservation of Fear and Fretting people then need a new pagan Hellfire to be scared of, and have largely settled on global boiling. So what if a POTUS comes along who says the hell with all this baloney: no more wind turbines, lots more coal, oil, gas, and nukes; a refurbished national electricity grid and lots of new pipelines, and let the newts take their chances like the rest of us? Could that change markets quickly?
Or if RFK Jr really were turned loose on the pharma industry and the routine corruption of its research: could that change markets? Or could a “peace president” do something useful about the hopeless inefficiency and incompetence of the “defense” industries and the wastefulness of the Pentagon? Could large chunks of the federal government be closed on grounds of being unconstitutional or extraordinarily burdensome?
Could anything useful be done in the face both of the huge acknowledged government deficits and the rarely acknowledged future costs of medicare and medicaid? Even if anything could, would Trump be the man to do it?
Pipe dreams, I expect. “They” would sabotage him or even shoot him rather than let such things happen. I hope God protects Trump because, by golly, I doubt if the Secret Service will. But there is no God. Good luck DJT.
Now there’s something to contemplate: Trump shot again but a couple of centimetres further over. I bet the markets would respond to that.
Joe Sixpack has a Ford F-150 in the driveway and a mortgage locked at 2.5% for 30 years on a home worth 50% more than it did 5 years ago. He’s actually fine.
Thing about US governance – speaking as a reluctant resident – is that since the Legislative branch is non-functional (filibuster) and the President can only direct agencies and issue unfunded orders, policy is largely irrelevant; the only thing left to fight over is identity politics. So here we are.
Never mind the US, look at the utter shambles going on in Germany. If we’re not going to make much economic headway with the US, what about the rest of the world? Brexit was supposed to bring us more economic autonomy, but the utter disdain and hatred our political class has for even the concept of going our own way means we’re left drowning in self-hatred and doubt. I despair.
dearieme -you could be a little more reassured in that Trump has a full functional depute in place -(in case of a successful third attempt on his life !)
ie JD Vance with his Indian wife is young and the real deal
His autobiography-“Hillbilly Elegy” is a most interesting read and provides some useful explanations of the current political situation
xxd09
I think the dip in the German markets is probably much more of a consequence of the sitting Government collapsing after the coalition Finance Minister was sacked, than as a reaction to Trump’s victory to the trade barriers. Germany has a lot more pressing issues than the next tenant of the White House in 2 months time.
Yet another failure for the “US equities are overvalued / represent too much of the index / the valuation gap is too wide / one must diversify” investment theses. As always perfectly rational, as always ultimately proved wrong
@JAQC — Excellent point.
@Aol — I know, it’s getting truly ridiculous but what can you do. Maybe it really is different this time! (Said with full knowledge and semi-irony). Temple Bar did a presentation last week showing US equities are priced for annualised 12-year returns of MINUS 6%, and that was before this recent bump.
I’m hugely underweight the US and it’s cost me of course this year.
@Learner — Interesting. I would say though that whatever the technical reach, the de facto influence seems a lot bigger, though granted it depends what you’re looking at being influenced… best of luck for the next four years!
Democracy – a system of government in which state power is vested in the people. Democracy has voted and the Donald is in the white house- isn’t this how democracy is supposed to work. It seems some people only accept democracy if it elects the person they want and lose their rag if it doesn’t. As it was a two horse race perhaps Sir Kier could have played it smarter. As for Lammy and a few more of his colleagues school boy error. The Donald does have bizarre ideas but occasionally he does speak the truth eg Germany reliance on Russia for energy, German economy suffering now and NATO re defence spending. How many other dared to call these out. I am in no way justifying Trump but he does deserve some credit. I had a discussion with friends of ours who are french. They don’t like Trump, he’s just a crook – however when I said the same about Sarkozy they were quiet. Each to their own.
@Bally001x — I can reach some agreement with the second half of your comment perhaps, but this idea that people should somehow warm to a candidate they really don’t like just because s/he was elected seems unsupportable to me.
I thought Boris Johnson was an awful candidate for PM before the UK public elected him, and I thought so after he was elected and he proved to be just that. And throughout I was dismayed he was voted in.
Where I’d agree is if people don’t accept the result of free and fair elections. But the only person who has done this repeatedly in recent years is Donald Trump! With horrible results in January 2020.
I agree there’s some shibboleths that needed testing, though I do wonder if more subtle players might have been pressing some of these buttons behind the scenes. On balance though I think vastly more harm than good in attacking institutional norms at pace.
In my view the only advances that separate us from the 17th Century let alone 2000BC is technology alongside the institutional encoding of norms most (I accept not all) would agree with such as liberty and equality and the right to property and a fair trial, and so on.
Things are not set in stone, progress and the occasional rebalancing is to be expected and welcomed.
But (threatening to start) smashing all that up as the leader of the world’s richest (/deadliest) nation doesn’t make you an iconoclast, it makes you dangerous in my view.
(Edit on reflection: Well okay I guess it does make you by definition an iconoclast. A dangerous one!)
Its an interesting time, that’s for sure. Trump is clearly a very odd and divisive character, and I cant get on board with his intolerance of what he considers ‘non-American’. However, having someone business minded running an economy like the US is not perhaps the worst idea. The markets did ok last time, and us investors are reaping the benefits. I just wish it wasn’t him!
On a related note, if you have time to listen to a podcast about the US presidency, this is worth 45 mins of your time.
https://freakonomics.com/podcast/has-the-u-s-presidency-become-a-dictatorship-update/
@TI:
Re: “I thought Boris Johnson was an awful candidate for PM before …”
Just remember who he was up against. Bozo the clown was possibly the least bad of the two pretty dreadful options?
Something not entirely dissimilar might – in part at least – explain why DJT got elected again?
@Al Cam — It’s true it was an unedifying choice. But we’re getting well off my own plea to keep things to markets and investing I’ve just realised (it’s so easy to do, I know) so I’ll leave this here.
Accounts of Trump 1.0 suggest that his team spent most of their time gaming him – largely to put a handbrake on whatever insane idea caught his attention at the time.
I’d guess that what happens next depends far more on the ambitions and agenda of his team than the big man himself.
I don’t believe he has the focus to rollback American democracy and can be deflected from wrecking the existing world order, if his advisors aren’t true believers.
I also think he’s personally sensitive to signals of economic health such as the stock market. If policy moves start tanking the S&P then I suspect the Administration will start backpedalling.
Hope so, anyway.
It is reported that inflation was one of the main issues for voters, yet when it came to the vote they didn’t favour the current government, who have taken significant steps to address it, and went for the candidate with policies seemingly designed to make inflation worse.
On DJT: Hope clouds observation. @AoI #14 & TI #15 re. US large cap valuations (TTM & CAPE): returns come from future earnings, not past ones. In any event, S&P 500 PE at 26 but top 10 at nearly 50x, inflating average. R2K median (not aggregate) PE just before Tuesday only 10.7x. Would still be just 12x considering only profitable companies. IMO melt up now > likely than melt down. High convexity plays: PLTR, TSLA, MSTR.
Thought provoking post.
I’m still digesting what it means – obviously you can like it or loathe it, but the reality is we get to live with it.
The big thing for the US is that technology is in their hands – who’s on Friends Reunited?
But the curse of technology is that more and more work and money goes to the hands of fewer and fewer people.
Not talking about Musk, but IT workers.
The coming poverty to middle class America is something that was foreseen decades ago – but I reckon that over the next 4 years the rug will be pulled from beneath the US populace.
But hey, my VWRL is up to record highs!!! I’ve nothing to worry about.
@Larsen #22
The same thing happened here.
@xxd09 I wouldnt worry too much what ministers in the UK government said about Trump. JD Vance is on the record calling Trump a nazi and he is getting the job of Vice President.
@Tom
>> However, having someone business minded running an economy like the US is not perhaps the worst idea. The markets did ok last time …
An understated element of Trump’s promise is to appoint a renowned private-sector cost/jobs-cutter like Elon Musk to take an axe to vast swathes of bloated and wasteful government (I’m not saying he’ll do it or that it will be a success, but that’s the promise).
Can you imagine any party in the UK, even the Tories, offering this here as an alternative to the recent tax rises? I can’t, and that’s why I remain very underweight in UK stocks, outside the 100 at any rate.
Musk as president next time around?
…or Musk and Trump to have a big public bust-up within months?
@Sponje
>> Musk as president next time around?
If you’re being serious, barring a major constitutional change he isn’t eligible, as he was born outside the United States.
If you’re indulging in whimsy, how could we trust the judgement of a man who married AND divorced a girl from one of the St Trinnian’s films not once but twice?
I said to my daughter (who is really shocked and upset about Trump winning) It won’t be as bad as people are saying. There will probably be some good things and some bad things …but that is democracy. If people are not happy they will vote in the other guy next time.