Trump win seen generally positive for markets

Financial markets expected Donald Trump to win the US presidential elections. Bitcoin rose 10% this morning to a peak of $72,000. Trump is considered a friend of the cryptocurrency industry. He has announced that he will turn the United States into the crypto capital of the world and has promised to form a “Presidential Cryptocurrency Council.” Dogecoin, which is closely linked to Trump’s victory, among other things due to Elon Musk’s support for him, has jumped 26%, doubling its value in the past month.

Wall Street futures also rose, rising more than 3% on contracts on the three leading indexes. Contracts on the Russell 2000 small-cap index are currently up more than 4%. On the other hand, yields on US Treasuries also rose, on the assumption that the election of Trump would lead to a renewed rise in inflation, and thus to a slower rate of interest rate cuts in the US.

Tomorrow (Thursday), the US Federal Reserve will publish its next interest rate decision. The market consensus is that it will cut rates by another 0.25% to 4.5-4.75%, but the market is less certain that it will continue to cut rates in its next decisions.

Winners and losers

History shows that a US president’s party affiliation has no long-term impact on financial markets. “Despite the temptation to tie market outcomes to election results, stocks have performed well under both Republican and Democratic presidents,” financial advisory firm Edward Jones said in a survey titled “Elections and Markets: 4 Lessons from the Past.”

However, in the short term, the capital market tends to respond to elections. According to data compiled by Morningstar, since the 1984 presidential election, the market tends to fall the day after the election by 0.5%, but on days when it rises after the election it can rise by more than 1%. But if you extend the view to a month, the market has been positive in most election years, rising by an average of 3.4% after three months, an average of 5.1% after six months, and an average of 16.4%. % twelve months after the election.

“Trump’s return is good for the US capital market,” says Gilad Kaiser, head of global equities at Migdal Group. “First of all, cutting corporate taxes on Trump’s agenda will boost corporate profits and help indices reach new peaks.”

“In a bilateral way, implementing the announced policy is a challenge for the Fed, but to the extent it is implemented, sectors and assets subject to inflation could do well, but of course, all scenarios are based on things that are reported,” says Ronen Menachem, chief markets economist at Mizrahi-Tefahot Bank. In the Republican program and on the views and methods with which Trump is known, but its strength and scope and whether it will be put into practice at all, depends on many factors, such as the current circumstances and it is also possible that the actual policy will be different from the statements, and of course we should not forget “For the next two months, a Democratic president will still be sitting in the White House.”

The market consensus is that a Trump victory will lead to a rise in traditional energy stocks (oil and gas), and that the US arms industry will also grow under a Republican president.

“Trump is known for increasing government spending, cutting taxes, cutting fossil fuels, and imposing tariffs on imports, which will challenge U.S. foreign trade. The U.S. debt-to-GDP ratio is already more than 120%,” Menachem says. The fiscal deficit amounts to more than 6% of GDP, and these two figures represent twice the size that any developed country aims to achieve over time.”

Kaiser adds that Trump’s position is clearly positive regarding sectors such as finance, energy, industry and health care. Regarding the financial sector, he says: “There will be a relaxation in regulation. Banks will need less capital than required by Basel III requirements, and there will be greater possibilities for mergers and acquisitions in this sector.”

Regarding energy, he says, “Trump’s policy is to increase supply and drilling, which will boost drilling service companies,” while in industry, “production will be brought back to the United States and preference will be given to American companies over international companies outside the United States.” In US health care under Trump, there will be less government interference and less pressure on drug companies and their prices, which will help Big Pharma.

In contrast, renewable energy stocks are a sector that is likely to suffer under Trump, which is understandable given his statements on the subject. “The entire green energy space is vulnerable to the removal of subsidies that Democrats are promoting,” Kaiser says.

But in this case, interest rates are the most important factor. They are the reason why stocks like SolarEdge have fallen in the past two years. High interest rates have raised costs and caused consumers to slow down their purchases, hurting sales.

As for consumption, Kaiser says: “Harris promoted a program designed to benefit the middle class and tax the rich. A Trump win and tariffs would be bad for small retailers.”

The electric vehicle industry will likely be disappointed, as under a Democratic administration it would have been expected to benefit from continued support, whether for buyers or in the form of grants for gasoline-powered cars to help them transition to electric vehicles, while a Republican administration would have been expected to . Be tougher on the industry and remove subsidies.

But Menachem hedges against these expectations, wondering whether markets have already priced in the election results. “Ultimately, since the approach taken by Trump and Republicans on most issues is known, it is likely that to the extent that the market has anticipated a Trump win, the different consequences, for better or worse, on various sectors have already begun to emerge.” Therefore, from the point of view of the balance of risks and opportunities, there is a greater chance of overreaction by the market in the event of surprises than in the implementation of the known agenda.

What about the dollar?

“The expectation is for a rate cut in the upcoming decision,” says Yonatan Brand, CEO of Ultra Finance. “On the one hand, Trump is seen as business-friendly, which is a positive signal for the economy and therefore for the dollar. Along with the strengthening of the US dollar against other currencies, we also expect a sharp rise in the value of Bitcoin and, as for other cryptocurrencies, the shekel is expected to weaken, “Whether because of the rise in the dollar or because of Gallant’s dismissal and the stormy demonstrations that took place last night, in the long term, in light of expectations of a decline in US interest rates, interest rates may weaken the dollar in the coming months.”

Regarding the American bond market, Or Boria, president of Boria Financial Planning, says, “Bond prices are actually falling sharply, and yields are rising, which will weigh on the stock market, as bonds become more attractive as an alternative to stocks.”

Published by Globes, Israel Business News – en.globes.co.il – on November 6, 2024.

© Copyright Globes Publisher Itonut (1983) Ltd., 2024.