Donald Trump’s victory in the US presidential election has been anticipated by the financial markets. Bitcoin rose by 10% this morning to a peak of $72,000. Trump is considered friendly to the cryptocurrency industry. He has declared that he will turn the US into the crypto capital of the world and has promised to form a “Presidential Crypto Council”. Dogecoin, which is even more closely associated with a Trump win, among other things because of Elon Musk’s support for him, has jumped 26%, and has doubled its value in the past month.
Futures contracts on Wall Street are also up, with rises of more than 3% on contracts on the three leading indices. Contracts on the Russell 2000 small caps index are currently up by more than 4%. On the other hand, yields on US Treasury Bonds have also risen, the assumption being that Trump’s election is liable to lead to a renewed rise in inflation and hence to a slowdown in the 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 its interest rate by a further 0.25% to 4.5-4.75%, but the market is less certain that it will continue to cut its rates in its following decisions.
Winners and losers
History shows that the party affiliation of the US president has no long-term effect on the financial markets. “Despite the temptation to tie market outcomes to election results, stocks have performed well under both Republican and Democratic presidents,” financial consultancy firm Edward Jones states in a survey entitled “Elections and the markets: 4 lessons from the past.”
Nevertheless, in the short term, the capital market does tend to respond to elections. According to data collected by Morningstar, since the 1984 presidential election, the market tends to fall the day after an election by 0.5%, but on the days on which it rises after an election it can rise by more than 1%. But if the viewing angle is widened to a month, the market has been positive in most election years, and it has risen by 3.4% on average after three months, by an average of 5.1% after six months, and by an average of 16.4% twelve months after an election.
Gilad Kaizer, head of Global Equity at Migdal Group, says, “Trump’s return is good for the US capital market. First of all, the reduction of corporate taxation that is on Trump’s agenda will boost company profits and help the indices reach new peaks.”
Ronen Menachem, chief markets economist at Mizrahi Tefahot Bank, says, “In a dichotomous way, implementation of the declared policy is a challenge to the Fed, but, insofar as it is implemented, sectors and assets subject to inflation could do well, but of course all the scenarios are based on things stated in the Republican platform and on views and approaches with which Trump is identified. Their force, scope, and whether they are put into action at all, however, depend on many factors, such as the balance of forces between the two Houses of Congress. It is also possible that actual policy will be different from the declarations, and of course it should not be forgotten that, for the next two months, a Democratic president will still be sitting in the White House.”
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The consensus on the market is that Trump’s victory will lead to rises in traditional energy stocks (oil and gas), and that the US arms industry will also grow under a Republican president.
“Trump is identified with greater government spending, tax cuts, fossil fuels, and the imposition of import tariffs, which will be a challenge for the foreign trade of the US. The US already has a debt to GDP ratio of over 120%, and a fiscal deficit amounting to more than 6% of GDP. These two numbers are twice the order of size that any developed country aims at over time,” Menachem says.
Kaiser adds that Trump is clearly positive for sectors such as finance and energy, industry and healthcare. On the financial sector he says, “There will be a relaxation of regulation. The banks will need less capital than in the requirements of Basel III, and there will be greater possibilities for mergers and acquisitions in the sector.”
On energy, he says, “Trump’s policy is to increase supply and drilling, which will boost drilling services companies,” while in industry, “Production will be brought back to the US and preference will be given to US companies over global companies outside the US. In healthcare under Trump there will be less government involvement and less pressure on drug companies and prices, which will help the big pharma companies.”
By contrast, renewable energy stocks are considered a sector liable to suffer under Trump, which is understandable in the light of his statements on the subject. “The whole green energy field is liable to suffer from the removal of subsidies promoted by the Democrats,” Kaiser says.
In this case, however, interest rates are the most important factor. They are the reason that stocks such as SolarEdge have plunged in the past two years. High interest rates have raised costs, and caused consumers to slow purchases, hitting sales.
As for consumption, Kaiser says, “Harris promoted a program designed to benefit the middle class and tax the rich. Trump’s victory and the imposition of tariffs will be bad for small retail stores.”
The electric vehicle industry is liable to be disappointed, as under a Democratic administration they were expected to benefit from continued subsidies, both to buyers and in the form of grants to gasoline fueled vehicles to help them switch to electric, while a Republican administration is expected to be tougher on the industry and to cancel subsidies.
Menachem hedges these forecasts, however, and wonders whether the election results have not already been priced in by the markets. “In the end, since the approach of Trump and the Republicans on most issues was known, it is probable that, to the extent that the market anticipated a Trump win, the various consequences, for better or worse, for the various sectors are already priced in, at least partially. Therefore, from the point of view of the risk-opportunity balance, there is a greater chance of overreactions by the market in the event of surprises than to the implementation of the known agenda.”
What about the dollar?
“The expectation is of a cut in the interest rate in the forthcoming decision,” says Ultra Finance CEO Yonatan Brand. “On the one hand, Trump is perceived as business friendly, which is a positive signal for the economy and hence for the dollar. Alongside a strengthening of the US dollar against other currencies, we also expect a sharp rise in the value of Bitcoin and other cryptographic currencies. As for the shekel-dollar exchange rate, the shekel is expected to weaken, both because of the strengthening of the dollar, and because of the dismissal of Gallant and last night’s stormy demonstrations. In the long term, given the expectation of lower US interest rates, the dollar may weaken in the coming months.”
On the US bond market, Or Poria, chairperson of Poria 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 of Globes Publisher Itonut (1983) Ltd., 2024.
