What does this mean for my super?
In the months leading up to the American election, public polling was close, but global markets predicted a Trump victory, further strengthening an already strong US$ amongst other signs. In the event, his victory was stronger and more decisive than imagined and Donald Trump appears to have led his Republican Party to a clean sweep of control over Congress. This means that he now has sweeping powers to enact his policies.
Within hours of Trump’s victory, US Stock markets surged, and after a week, they stand between 4-5% higher than on the eve of the election last Wednesday.
US shares represent over 60% of the global equity portfolio CINSF uses to gain access to global markets, so not surprisingly, the fund has done well out of this event.
However, this is frequently called a relief rally in the stock market where the prevailing bias is confirmed.
Expect that if this continues to gain steam in the short turn, investors will become more sceptical for 2025. Government change will bring uncertainty next year, especially if Trump overstimulates an already strong US economy with relatively full employment.
The lesson learned might be that inflation kills sitting governments. In more than 70% of elections around the world since inflation came back in 2022, the ruling party has lost seats – and only half the time has the ruling party stayed in power. The US and Japanese elections over the past two weeks reinforced the fact that inflation is negative for incumbent parties – and in the US case it was a killer.
What to expect from markets?
Trump is likely to extend his 2017 tax cuts, which expire in 2025, on the back of re-election. In addition, he is an advocate for renewing America’s manufacturing and will impose trade tariffs making it more difficult for foreign companies to sell into the enormous and profitable US economy. This could backfire, increasing US inflation for the Americans who voted for him in expectation that prices would fall under his Presidency.
Equally, such tariffs will be bad for global trade. Failing to deliver on his election promises cold see a rapid fall from grace with his core voters later in his term.
As a result, bond markets, which are sensitive to inflation fears, showed less enthusiasm, while European and Asian stock markets displayed a mixed to negative view of his re-election. The French and UK markets were disappointed as both countries are heavily weighted towards global trade.
In addition to Trump’s economic policy, there remain several geo-political concerns as to how he might resolve conflicts or indeed incite new conflicts. In addition, his divisive and radical social policies openly discussed during the campaign could disrupt 48% of his population.
While this President is known for his sword-rattling dramatic statements, it is anyone’s guess as to how much of his showmanship will translate into actual policy. But within this context of uncertainty, expect a bumpy ride – as we experienced in his first term.
You may remember it was the trade-war sparked against China amongst other issues such as BrExit that produced one of the most negative years in CINSF history in 2018. We would also remind you that while there are good years and bad, the robust nature of the CINSF fund design helps secure a long-term return that is attractive for all their options. 2019, and even the Covid years proved profitable for investors, more than reclaiming the 2018 reduction.
Research shows that no matter which party is in power in the White house, markets ultimately dance to their own beat and the vigorous global market asserts itself.
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