- Trump wins the US election by a comfortable margin, collecting (most likely) 312 of the 270 required Electoral Votes
- Tax cuts and government spending should boost the US economy, particularly domestic manufacturing
- Trump’s policies are inflationary, and interest rates will likely stay higher for longer unless Trump can remove Powell, the chair of the Fed
When Trump won in 2016, he received 306 of the required 270 Electoral votes which he declared a ‘massive landslide victory’. This was despite actually losing the popular vote to Hillary Clinton by 2%. I wonder how Trump would then describe this victory given that he’s on track to receive 312 of the Electoral votes and win the popular vote by 3%. It is an enormous reversal of the 2020 election which saw Biden instead take 306 electoral votes. The polls were wrong, which predicted a far closer election than it was, with each candidate supposed to receive a fair share of the swing states. Instead, Trump won all seven of them: Georgia, Michigan, Nevada, Pennsylvania, Wisconsin, North Carolina and Arizona (tbc). In an even bigger turn of events, it looks like Trump hasn’t just won the presidency, the Republicans are about to complete a full red sweep: the presidency, the House and the Senate. This unified government will allow Trump to push through his political agenda faster and more efficiently as budgets are controlled by the house and so this gives him greater scope for radical change, assuming the party sticks with him.
How did it happen?
Source: BBC News
The above table is just a sample of the overall voting. It shows that Harris actually lost female votes (Biden won 57% of the female vote) despite being one of the key demographics she was targeting. Harris focused on abortion rights to capture the female vote, whereas Trump focused on economic policies and stole back 17% of the working-class female vote. The economy and cost of living crisis was clearly at the forefront of American voters’ minds and Trump had clearer, more defined policies to tackle this. Illegal immigrants are creating huge cost pressures in communities throughout America and addressing this has always been Trump’s number one priority; we believe ‘vote for the policy not the personality’ won out.
The market implications
This election result will have material international consequences, after all, Trump said himself that the word ‘tariff’ is his favourite in the dictionary. However, this week we will focus on the implications for the US and next week we will explore what it means overseas. Generally, it is good for corporates in America. Corporate tax cuts boost profit margins, extension of his 2017 tax cut policies will sustain consumer spending (further boosted by any additional tax cuts like the one on tips) and increased government spending on things like infrastructure will keep the US economy strong and consumer confidence high.
More specifically, domestic manufacturers will likely benefit the most from targeted corporate tax rate cuts plus tariffs on international manufacturers. Banks should do well as a result of Trump’s deregulation in the industry, as will extractors in the oil and gas industry. Aerospace and defence is also likely to benefit from increased defence spending. This has global implications as well because Trump has always been critical of how little the other members of NATO spend on defence in comparison to the US. Lastly, smaller companies should benefit from a Trump presidency, as they did in 2016, as they will benefit the most from Trump’s protectionist policies with domestic consumers and domestic suppliers. A lot of this has already been priced in – for example JPMorgan jumped more than 10% the day after the election, whilst the Russell 2000 (US Small cap index) rallied over 5%, but we believe these themes have further to run.
It’s not all good news though. Everything about what I’ve written above is inflationary – tariffs, tax cuts, government spending. Furthermore, Trump has been a big critic of Jerome Powell and the Fed’s interest rate path in recent years and will replace him with someone that is more aligned to Trump’s vision of low interest rates when Powell’s term expires in May 2026. Despite Powell and the Fed cutting US interest rates by another quarter of a percentage point this Thursday, inflation is likely to rear its ugly head again in the US under a Trump presidency, and the Fed may be forced to hold rates higher for even longer. The US Treasury market pulled back a little as a result with the US 10-year yield rising from 4.30% to 4.45%.
Bowmore portfolios
Bowmore portfolios were well positioned for a Trump victory. We hold next to no exposure to US Treasuries, preferring UK Gilts and Corporate Bonds and have a heavy small cap bias on the Equity side. Our small cap US Equity fund, VT De Lisle America, has returned 6.8% in the last two days. The US Equity bucket of our Core portfolios already has an overweight to Financial Services, Industrials and Energy – sectors that we believe should outperform as a result of this election. It is possible that we lean into these even more going forward.
Next week, we will cover how our international positions may change as a result of a Trump presidency. Overall, the Bowmore Core Risk Profile 5 portfolio was up 0.9% on Wednesday vs the IA benchmark’s 0.5%.
