Trump Victory Spurs Market Gains and Economic Shift Expectations

Trump Victory Sparks Market Gains and Economic Policy Shifts

Red Wave: Donald Trump has won, and the GOP have flipped the Senate and could take the House, too. If Trump’s really on to take the national vote, too, it’s a huge mandate for his platform. But what is this? Trade and tariffs, and taxation would be the 3ts of the Trump Trade, followed by deregulation. Bear in mind as a caveat that the House is still up for grabs, and Trump had complete control of Congress last time, and it didn’t mean he could do everything he said he would.

I did predict this yesterday: My bet is that Trump wins a lot more easily than the polls indicate, and we get this wrapped up by breakfast tomorrow morning.

There is relief in the market that this was clean and clear – no ambiguity about this result. We can also see some clear market reactions to the result – Russell 2k futs surged +4% to highest in three years, S&P 500, Dow futs and Nasdaq futs +2%, Bitcoin rallied to an all-time high, and the US dollar is bid up across the board whilst oil and gold fell. Stocks are probably less sensitive to the Trump Trade than the FX space, and this has been borne out so far – a lot more orderly than in 2016 – partly because Trump is known and partly because it WAS NOT A SURPRISE!

Winners: Trump, Musk + Tesla, Polymarket, Bitcoin, USD, Industrials, financials, energy, small caps, anything with regulatory overhang and just generally US growth

Losers: Democrats, pollsters, Rory Stewart, David Lammy, China, left-wing European governments, EM currencies, tariff-exposed stocks

Treasury yields moved up with the 10yr to 4.425% and are likely to move towards 4.5% as we start to get a feel for the reaction, what Trump does next, and what the Fed does next. So far, traders are pared bets on Fed cuts next year and raising ECB rate cut bets as a flavour of the initial response.

Early post-election FX moves striking to price in tariffs and trade wars… further to run in a GOP clean sweep scenario, which looks more and more likely

A strong Trump trade has sent the dollar firmer across the board, with the Sterling, Euro and Yen down 1-2% in early trade. The euro seems to be the clearest expression of tariff fears though.

USDJPY above 154 to hit highest since late July

EURUSD testing 1.07, weakest since June

GBPUSD down but not quite broken last week’s Budget lows

USDMXN surged to its highest since July ‘22 - evocative of the 2016 type move

Gold down over 1% to $2,707, weakest since about three weeks – sharp move on higher yields and stronger dollar, but ultimately, if Trump’s policy is reflationary and deficits do go up, then we think gold has further to the upside.

Stocks markets so far like the clarity of the Trump win this morning, and futures are pointing to a firm open.

We now look to our Republican Clean Sweep scenario

A Republican ‘trifecta’ of securing the White House, Senate and House would result in the repeal of some elements of the Inflation Reduction Act, more China tariffs, lower regulation, lower corporate taxes, an extension of individual tax cuts, and broadly reflationary for the US economy. Indeed, Trump has flirted with ending income tax completely, using tariffs alone to fund the government. Although this seems unlikely, as the Republican-dominated Congress would be hard-pressed to back it, I can imagine a scenario where an unfettered President Trump takes this radical, ultimate tax cut.

This Republican clean sweep scenario ought to favour short Treasuries (The PTJ/Druckenmiller position), with yields likely rising and the curve steepening. The 10yr Treasury yield could break 5% by the end of the year. The recent decoupling in the 10yr from oil points to a clear Trump trade at work.

Industrials, financials, energy and crypto would be among the most favoured sectors and US cyclicals doing well. Anything exposed to China tariffs would likely be sold, with small caps and US MAGA domestic plays bought.

Stocks to watch

Those likely to face headwinds from tariffs include Five Below (FIVE), Best Buy Co (BBY), Yeti Holdings (YETI), Nike (NKE), Starbucks (SBUX) and Apple (AAPL).

Defence stocks such as Lockheed Martin (LMT) are seen by many as winners of Trump's focus on military spending. One caveat to this thesis would be a potential peace deal in Ukraine, though the likes of Thales (THLLY) and other European defence manufacturers could benefit from Trump pushing EU nations to spend more on defence.

Energy stocks could move, too. We know Trump is likely to be friendly to big oil and gas, potentially easing regulations and greenlighting LNG exports. This could benefit, for instance, New Fortress Energy (NFE), Cheniere Energy (LNG), and Valero (VLO), among others. Downside risks may rise for European majors like Total (TTE) and Shell (SHEL).

Less obvious candidates may include Western Union (WU) – if Trump removes illegal aliens, it would lower remittances; or private prison group Geo (GEO), on the basis of more people in detention facilities.

A Trump win could also result in Lina Khan leaving the FTC, which could spur more M&A activity and boost boutique advisory firms like Moelis (MC), PJT Partners (PJT), Evercore (EVR), and Houlihan Lokey (HLI). You could also, therefore, take a look at Kroger (KR), which is trying to buy Albertsons (ACI), or Capital One (COF) and its bid for Discovery (DFS).

Among social media companies, Trump Media & Technology Group (DJT) is one to watch for obvious reasons. But elsewhere check how Trump treats Section 230, which protects sites like Meta and X from liability for the content posted by users. Any change could hurt the likes of Meta (META), Reddit (RDDT), or Snapchat (SNAP).

Some other names that could benefit from a Red Wave include Sempra (SRE), Dow Chemical (DOW), 3M (MMM), Coinbase (COIN), Haliburton (HAL), SolarEdge Technologies (SEDG).