US Election: Market Commentary

8:00 AM CET

Parsing the Trump comeback: Key takeaways

Mike Mullaney, Director of Global Markets Research

Donald Trump made history as the second candidate in US history to win non-consecutive presidential bids. The margin of victory was more decisive than expected, and Trump is set to become the first Republican to win both the electoral college and popular vote since George W. Bush in 2004. Politically, the composition of the US House of Representatives is crucial. If Democrats regain control, it will be harder for the GOP to advance key agenda items. The final outcome of many close races remains unknown. Republicans now control the Senate, with the final count potentially reaching 54 seats, making cabinet nominations easier for Trump and impacting the Supreme Court.

On policy, Trump campaigned on higher tariffs, but achieving this without a cooperative Congress is uncertain. China is likely the only target for consensus. Tax cuts for corporations and an extension of the 2017 personal tax cuts will be hot topics in the new year, depending on Congress’s composition.

Regarding immigration and national security, deporting 20 million undocumented migrants is unlikely due to logistics and cost. Immediate tasks will focus on slowing migrant flow, deporting those with criminal convictions, and reinforcing the southern border wall. Financial support for Ukraine is expected to change, given Trump’s promise to end the war in Ukraine on day one. Both President Zelensky and PM Benjamin Netanyahu have reached out to Trump, hoping to gain favor before he returns to the White House.

Yesterday’s Trump victory will have significant political and financial market impacts. Trump's agenda favors stocks over bonds and the US over Europe and emerging markets. Within emerging markets, India is preferred over China, especially if tariffs are introduced. In North America, Canada is favored over Mexico due to potential immigration policy tensions. The US dollar is expected to rally under Trump, making it a preferred currency in short-term FX trades.

Value stocks, small caps, and high-beta market segments are likely to appreciate. Sectors benefiting from Trump’s plans include financials with banking deregulation, traditional carbon-based energy companies, small/mid-cap information technology, and consumer discretionary. Geopolitical risks, which contributed to Trump's victory, could lead to increased asset price volatility, particularly in the VIX and MOVE Index as Treasury rates adjust to new political realities.

16:00 PM CET

A boost for US corporate earnings and domestic production

Brad Brezinski, Head of International Investor Relations & Distribution Boston Partners

As confirmed by multiple outlets, Donald Trump has secured a second term in three Presidential cycles and there remains no paths left for Kamala Harris to contest the election, given the dominant showing by the Republicans on Election night. Trump secured nearly all battleground states and made up significant ground in traditional Democrat strongholds such as New Jersey and New York. Trump is headed back to Washington DC, this time with a different cast of supporters and advisors as he was joined on stage last night by a host of media, sports and business leaders, in addition to his running mate JD Vance and family. Kamala Harris is expected to speak later today and given the margin by which Trump is leading across even the closest states, anything but a concession speech would be surprising.

The full makeup of the US government is still in the balance but it is known for sure that the Republicans will take over the Senate, flipping at least three seats and securing the majority of the 100-seat chamber. The House of Representatives remains undecided but given national voting trends, odds are better this morning that the Republicans will hold the House than compared to polling expectations before the election.

The control of the Congress would give the Republicans a mandate and more importantly, a platform to enact significant legislative changes. This outcome, a Republican wave, could lead to more long-term volatility as the market cannot rest assured that infighting between the Democrats and Republicans would limit any significant policy changes. More votes are to be tabulated for the House and clarity should come today and tomorrow as to whether the Republicans have pulled off a sweep.

Markets have reacted positively. Before the open the S&P 500 was up over 2% with a specific focus on US small and mid caps (up almost 6%), Bitcoin (up nearly 7%), Tesla (given Elon Musk’s involvement with Trump’s campaign, up 12%). Areas seeing weakness included international equities, oil, gold, Treasury bonds (yields rising) and Chinese equities. Broadly a Trump victory is expected to boost corporate earnings, focus on domestic production through his promised tariffs and to aid sectors such as energy (carbon-friendly), finance (deregulation) and materials.

In the long run, the impact from tariffs and Trump’s expected tax cut extensions may have the result of significant increases to the US deficit and impacts on inflation, but the market will wait to see what were merely campaign trail talking points versus serious action points that will be the focus during the start of Trump’s term in January 2025.

14:30 PM CET

The impact of Trump’s win on thematic investing

Ralf Oberbannscheidt, Global Head of Thematic Investing

Donald Trump’s victory and the flipping of the Senate into Republican hands will have repercussions for thematic investing. Here’s what we expect for four of our thematic strategies.

Smart Energy strategy
If the Senate and House remain divided, significant changes to the IRA and investments in renewable energy will be difficult. Some changes could be made, but a complete overhaul is unlikely. BloombergNEF estimates that USD 110 billion out of the USD 113 billion of factory investments tied to renewables and EVs have gone to Republican-leaning or swing states. According to Morgan Stanley, 80% of clean energy projects over USD 1 billion are in Republican-led Congressional districts, creating between 150,000 and 300,000 jobs since the IRA was passed. The Production Tax Credit (PTC) and the Investment Tax Credit (ITC) have historically had bipartisan support.

There is likely to be increased support for fossil fuels and significant reductions in environmental regulations. Regardless of federal action, many states and local actors could continue to support renewable energy and climate policies. History has shown that a favorable or unfavorable macroeconomic environment influences the development of renewable stocks more than who is President.

Sustainable Water strategy
The US water industry receives funding from federal, private (commercial), and state/local governments. Private funding from companies and businesses is unlikely to be significantly affected by the US Presidential election outcome. Water infrastructure investments typically occur at the state and local levels, driven by regional needs and regulatory requirements. US states receive funding from water bills, taxes, and federal contributions, with federal funding playing a crucial role.

The Republican victory is likely to impact federal funding and regulation. Comprehensive reforms planned under the IRA are likely to be hindered, and there may be a potential slowdown or reassessment of the USD 4.7 billion earmarked for water-related initiatives.

Smart Mobility strategy
In the US, the EV market is impacted by multiple layers of regulation, including EPA emissions rules, President Biden’s target of 50% EV penetration by 2030, and the IRA. In March 2024, the EPA introduced new standards for models brought to market in 2027 and later, aiming for a nearly 50% reduction in GHG emissions compared to 2026.

The IRA includes a direct EV subsidy (Clean Vehicle Tax Credit, or CVTC) to increase EV adoption and reshoring incentives for the EV value chain. The Advanced Manufacturing Tax Credit (AMPC) introduced a 45 USD/kWh incentive for domestic cell and module production. The government will also finance 10% of the cost of domestic production of critical minerals and electrochemically active materials.

A Trump administration is unlikely to touch the AMPC due to investments and job creation benefits in Republican states but may eliminate purchase subsidies for EVs. The strategic direction of the IRA to decarbonize the transportation industry while relying on domestic and allied countries resonates with Trump.

Healthy Living strategy
The US market significantly contributes to the global healthcare sector’s profitability, and regulatory changes can deeply impact the sector. With Trump’s victory and the Senate turning Republican, Medicaid expansion could stop and likely reverse, negatively impacting hospitals and managed care companies exposed to Medicaid. Funding pressure for Medicaid could increase.

The IRA introduced significant drug price cuts in Medicare. A Republican administration could negotiate only insignificant net-discounts in future rounds, benefiting some of the big pharmaceutical companies. The first wave of these drug price cuts will go into effect in 2026. Renewed efforts to derail the Affordable Care Act (ACA) are unlikely given its popularity, but changes would negatively impact the sector due to reduced medical use.

12:30 PM CET

The impact of the US Election on emerging markets should not be overestimated

Wim-Hein Pals, Head of Emerging Markets team

The US remains by far the largest economy in the world, and its election results will have a global impact. However, we should not exaggerate the effect. It’s true, a Trump victory would generally not be good for stocks in emerging markets. This is mainly due to the protectionism that Trump advocates and the call for higher import tariffs, which particularly affects a country like China. Stocks there are expected to underperform the most. Coincidentally, the National People’s Congress (NPC) is meeting this week. After Trump’s win, Chinese authorities might resort to the long-awaited ‘bazooka’ to stimulate the sluggish economy.

So far, the stimulus measures have been limited, keeping the budget deficit in check. Using the ‘bazooka’ would relax budget discipline and give the economy a significant boost. Whether this is effective and to what extent it exacerbates the debt problem is a concern for later. Mexico will also suffer from potential import barriers. Its open economy thrives on low trade tariffs and the limited obstacles for US companies to set up factories with comparatively cheaper labor costs.

Are there countries and economies that will be little affected by a Trump administration? Yes, this includes the more autonomously operating economies in South America, as well as India and Southeast Asia. These countries likely have the least to fear from increasing protectionism. They have large domestic markets and relatively little export to the US. Overall, Trump’s election victory seems unattractive for the entire emerging markets spectrum in the short term. Particularly in Central Europe, Mexico, and parts of Asia, there is a high chance of a stock market correction.

However, let’s not forget that over the past four years under the Biden administration, import tariffs have been widely introduced or increased. Moreover, the number of (mainly Chinese) companies on the banned list has risen to unprecedented levels. Therefore, in the long term, a new administration in Washington DC is certainly relevant but not a dominant factor for free world trade, and the impact on some major emerging countries should not be overestimated either.

10:45 AM CET

Podcast: US Election - The impact on equities, bonds, currencies and commodities

Colin Graham, Co-Head of Sustainable Multi Asset Solutions

In this podcast multi-asset investor Colin Graham and fixed income portfolio manager Lauren Mariano discuss the impact of the US Election on various corners of the financial markets.

10:30 AM CET

Fixed income update

Lauren Mariano, Portfolio Manager

Rates markets have begun pricing in a Trump victory and in particular a ‘red sweep’ early on after the first election results have come in, in tandem with the ‘Trump trade’ price action seen in US equity market futures and the US dollar.

The Republicans have managed to flip enough seats to secure a majority in the Senate, which was widely expected heading into the election. While the sell-off in bonds took a breather as odds rose for Democrats gaining a majority in the House, the move back toward the day’s highs in yields resumed and a Republican-held House is the now the most expected outcome.

European rates are down sharply on the day, as markets suspect that the prospect of tariffs is bad news for the European economy and that this would reinforce pressure on the ECB to cut interest rates. Tariff concerns are not weighing on European equities nor credit (yet) it seems.

Higher fiscal deficit
The Trump agenda aims to extend all 2017 tax cuts across income levels and corporations, with potential further cuts added. Tariffs are expected to offset some of this, but the deficit will likely widen vs. the current forecast over the next ten years. A recent study by the Committee for a Responsible Federal Budget (CRFB) estimated that that Trump’s policies could add approximately USD 7.7 trillion to the national debt over the next decade.

Tariffs
We will see a negative supply shock from higher tariffs, with companies forced to pass on higher prices to consumers, leading to higher inflation, and lower US growth. A red sweep makes it easier for Trump to push forward with his tariff agenda. Changes to tariffs on China will likely be addressed first.

Immigration
Stricter immigration laws and the proposed mass deportation of illegal immigrants would limit the supply of labor and serve as inflationary.

Federal Reserve
Inflationary risks from tariffs and Trump’s proposed immigration policies could challenge the Fed’s ability to continue cutting rates, and there is also potential for the Fed’s independence to come into question given Trump’s previous criticism.

Positioning – Global macro fixed income
Heading into the election, portfolios had a bias to curve steepener positions and an overweight duration bias, mainly concentrated in European government bond markets (due to monetary policy expectations of central banks cutting rates). Steepener positions were trimmed into the election day, as polls suggested a close race, but this morning Eurozone steepener positions have been increased.

Our top-down credit position in portfolios remains broadly neutral.

9:00 AM CET

Financial markets have moved to price in a Trump victory

Colin Graham, Co-Head of Sustainable Multi Asset Solutions

The Red Wave is building. A Republican win could be confirmed in short order without any elongated recount or legal dramas. The key change in policy is how the US will deal with the rest of the world, with more exceptionalism and isolationism. The second change will be how fiscal spending will be channeled and how the pressure on the Federal Reserve will increase.

We believe we will see a number of changes happening. This includes increased tariffs, reduced military support for regional wars, lower immigration numbers, tax cuts for businesses, a reduction in energy transition subsidies, less regulation, and more pressure on the Federal Reserve to lower rates.

What are the implications for financial markets (based on current information)?

Currencies
The US dollar strength will continue due to favorable interest rate and growth differentials. The euro may suffer, especially with tariff uncertainty. The yen is undervalued vs. the US dollar; Japanese politics may struggle this time. Emerging currencies will remain under pressure in a stronger US dollar trend.

Fixed income
US rates will stay higher for longer to offset pro-cyclical stimulus and US yields will rise across the curve, especially with a Republican sweep in Congress. Global bond yields will follow US Treasury yields higher, while emerging debt will continue to deliver high real yields. Credit markets will see a total yield rise along with sovereign bonds; US spreads will be supported by inflows and tax cuts, European spreads mixed.

Equities
The US will remain the primary destination for capital; US equities will be the standout market with earnings per share growth close to 10%. The rest of the world will have bouts of outperformance but nothing sustainable. Some domestic industries such as banks should turn out to be more insulated from tariffs. Europe may fare better with industries having pricing power and strategic inputs. China will need more domestic stimulus to restart the economy. Business models based on government subsidies will need to review sales targets while developing economies will not benefit from increased US support.

Commodities
Gold’s uptrend remains well supported as the long-term debasing of paper money will attract investors. Oil supplies will grow as US drilling and pumping activities rise and commodities needed by the US will see increased demand. Industrial metals will struggle as energy transition hopes dim and China can’t create an export-led recovery.

8:00 AM CET

Is a Trump win only about tariffs and only bad news for Asia?

Joshua Crabb, Head of Asia-Pacific Equities

A Trump win might very well drive opportunities in Asia. In our view Japan, ASEAN and financials are well-positioned to profit from the US Election outcomes. As it currently stands, there is a high probability of a Trump victory, with the final count in Pennsylvania being crucial for any remaining chance for Harris. The win looks more convincing than suggested by polls, which should hopefully avoid any drawn out contested outcome. The Republicans should win the Senate, however the House is still too early to call and may still take days for an outcome.

A clean sweep for the Republicans would likely result in a more aggressive policy agenda by Trump. US futures are reacting favorably so far, with the DXY stronger and rates higher across the board. Asian markets are mixed, with notable movements including a weaker Hang Seng and H-share market, although A-share markets are up and the Japanese market is stronger.

So, what does this mean for Asia? The primary concern will be around tariffs and trade restrictions, which will have some impact but have been somewhat factored in. The offset to this will likely be a more aggressive policy response in Asia, both fiscally and monetarily. The first indication of this will be stimulus in China, with the NPC scheduled to finalize on 8 November. A potentially higher inflationary and rate outlook should be positive for growth and equities at the margin.

As long as this results in fewer (but not an end to) rate cuts and better growth, this will drive opportunities in Asia. However, sector and policy responses will be important. Our overweight positioning in Japan, ASEAN, and financials should benefit from this outcome. We will be closely watching stimulus efforts in Asia. The caveat will be on exporters, a potentially stronger USD shorter term and heightened geopolitical risks with a more domestically focused US. Domestic-oriented countries and sectors should do better.

7:30 AM CET

‘Markets respond in an opposite manner compared to 2016’

Brad Brezinski, Head of International Investor Relations & Distribution Boston Partners

First and foremost, the Presidential election is leaning heavily toward a Donald Trump victory. Markets are reacting in an opposite manner to what happened in 2016 when Trump surprised Clinton. Overnight futures for US markets are higher while treasury yields are rising all along the curve. Trump’s expected sectors of favoritism for the market include small and mid-cap domestic-focused businesses, carbon-focused energy, finance, and materials. Across different US indices, the Dow leads the S&P 500 and NASDAQ by small margins.

So where are we? Trump has secured Georgia and North Carolina and holds leads across nearly all battleground states as votes continue to be counted. Kamala Harris has a very narrow path to the White House, needing to hold onto Pennsylvania, Wisconsin, Michigan, and others despite currently trailing in nearly every one of those states. At this moment, Trump has not declared victory at his campaign party in Florida, while Harris has sent her supporters home.

As was the case with either candidate, the makeup of the US government was also in focus on this election day. Currently, it looks as if both chambers of Congress will flip, with the Senate decided for the Republicans as they have flipped three seats and currently lead in several other races. The House is going to come down to the wire as Democrats look for one win on the evening. If the Democrats do take control of the House of Representatives, there will be some checks and balances in place for Donald Trump. Executive power has limits, and once these races are final, the focus will shift to what sort of policies Trump and Republicans can enact without full control of Congress.