Trump wins US election, claims “powerful mandate”

3 things you need to know

• Trump wins White House in historic comeback
• Under a Republican “clean sweep”, tax cuts, trade tariffs, immigration curbs, and deregulation are likely
• While market volatility is likely in short term, investors would do well to take a longer-term view
  

While the final Congress composition is unlikely to be known for days, Republicans have won control of the Senate and are very likely to also control the House of Representatives in a so-called election “clean sweep”. This will facilitate Trump’s planned trade tariffs, more expansionary fiscal policy, and immigration curbs. These are expected to prove inflationary, constraining the Federal Reserve’s room to cut interest rates.

Trump’s victory makes him only the second president in US history to win non-consecutive terms. The first was Grover Cleveland, who won the 1884 election, lost in 1888 and then won again in 1892.

Trump, who served as the 45^th US president from 2017 to 2021, wants to levy tariffs on imported goods and on specific companies and countries. He has vowed to alter the US relationship with NATO and to resolve the Ukraine war and Middle East conflicts. Trump campaigned to end asylum privileges and reinstate tougher immigration policies as well as strengthening border control measures.

At home, Trump wants to cut corporate tax. He has even floated the idea of ending income taxes and substituting them with tariffs. He has also suggested eliminating taxes on tips, overtime pay and Social Security, along with renewing his 2017 tax cuts, which are due to expire in 2025. At the same time, Trump has promised not to cut Medicare, which is federally provided health insurance for older people. The impact of these proposals will depend on which combination are pursued and how they are structured. For any fiscal position to become reality, the president’s party will need a majority in Congress, which now seems highly likely.

Trump, who survived two assassination attempts during his campaign, also wants to deregulate, proposing a new government efficiency commission to be headed by Elon Musk, who supported his campaign for the presidency.

While market volatility is likely in the immediate term, investors would be well advised embrace a longer-term view and be ready to position themselves to take advantage of potentially outsized reactions, bolstering their portfolios for the longer-run.

We believe this election scenario supports US equities relative to the rest of the world, though an ‘America First Reflation’ scenario should lead to higher inflation expectations and a less dovish Federal Reserve. The market expects inflation and term premia to reprice upwards due to tariffs and expectations of a higher deficit, resulting in higher long-term interest rates.

Relative economic outperformance by the US and higher interest rates should be supportive for the US dollar. In such an environment, gold and the Swiss franc could also be supported given their safe-haven status, in light of heightened uncertainties and potential increased geopolitical tensions.