Elections
Investors are overstating the positive fiscal impact of the Trump presidency. The bond market will have something to say about the scope for further deficit expansion via tax cuts. As such, the trade after the trade of the Trump 2.0 administration may involve less growth out of the US, not more. In the interim, however, investors should continue to expect higher yields and increased equity volatility. There are plenty of risks ahead, including geopolitics, trade, and uncertainty surrounding fiscal policy.
Ultimately, 2024 is not 2016 — a seemingly obvious point, but one with market relevance. In 2016, voters gave Trump a strong mandate for nominal GDP growth. It is not clear if this is the case today. Inflation is the most important issue, least relevant is trade and globalization. As such, Trump’s renewed mandate is for supply side reforms, not more populism and protectionism.
Trump’s resounding victory brings a popular mandate that ensures deregulation and higher trade tariffs. Higher budget deficit and immigration reform are also in the cards as the Republicans look like they may squeak a thin margin in the House of Representatives. Foreign policy will become more unilateral, with US assets outperforming initially.
Trump’s resounding victory brings a popular mandate that ensures deregulation and higher trade tariffs. Higher budget deficit and immigration reform are also in the cards as the Republicans look like they may squeak a thin margin in the House of Representatives. Foreign policy will become more unilateral, with US assets outperforming initially.
Our thoughts on the bond market’s reaction to the election and this afternoon’s FOMC meeting.
Trump’s resounding victory brings a popular mandate that ensures deregulation and higher trade tariffs. Higher budget deficit and immigration reform are also in the cards as the Republicans look like they may squeak a thin margin in the House of Representatives. Foreign policy will become more unilateral, with US assets outperforming initially.
Over the next few months, Japan’s new government will ease fiscal policy, which will improve domestic demand on the margin. Monetary policy may tighten further in the short run but not too much over the long run. The geopolitical setting drives Japan into accommodative economic policy.
The Election Day is finally upon us. No, there is no final “silver bullet” forecast contained in this email. Just our long-term forecast of how the election will, no matter who wins, impact the markets.
