Flash update - US Presidential election - November 2024

Aviva Investors Multi Asset Team

Donald Trump will be the next of President of the United States. This is largely due to his victories in key battleground states such as North Carolina, Pennsylvania, and Georgia.

Markets are now anticipating a Republican clean sweep, meaning the Republicans could gain control of both houses of Congress as well as the Presidency. They have already secured full control of the Senate and are on track to win a majority in the House of Representatives.

What is the short-term market reaction?

• In the short-term, equity and bond markets have reacted as expected given the election result with so-called "Trump trades" rallying. Markets have also been impacted by the Federal Reserve cutting rates on Thursday by the widely-expected 25bp cut.
• The S&P500 is now up more than 25 per cent YTD, and Bitcoin has surged to all-time highs as markets anticipate a clean sweep. Currently, the chances of a clean sweep are at 97% according to latest Polymarket polls.
• Following US Treasury yields initially selling off on Wednesday, yields have since unwound some of their post-election moves. Similarly, the dollar index has also given up some of its gains, when it raced higher against the euro, the yen and the pound.
• These moves are based on the expectation of Trump’s intention to raise tariffs and cut corporate taxes from 21 to 15 per cent, which could push up inflation and keep interest rates higher for longer.

What is the potential longer-term market impact?

• The impact on US and international equities is less clear-cut. Trump has discussed potential tariffs of 60 per cent on Chinese goods and 10 per cent on goods from other nations which could favour domestic companies, but might provoke retaliatory measures and stifle free trade.
• Longer-dated bonds could face pressure due to the fiscal outlook as Trump’s tax and spending proposals could add $4.1 trillion to the primary deficit over the next decade. If these proposals are implemented, the debt-to-GDP ratio could increase by as much as 10%.
• The dollar has already risen by 3% since the start of October in anticipation of a Trump victory. If Trump’s policies mean the US economy continues to outgrow major international peers, this trend can be expected to continue.
• However, the full implementation of these policies is dependent on Trump winning a clean sweep and getting support from Congress once inaugurated in January.

How are we positioned in our multi-asset portfolios?

• Although there may be short-term volatility, the strategic asset allocation of our portfolios is built with a long-term view and global diversification.
• From a tactical positioning perspective, we have an overweight position to North American equities. We retain conviction in this position in light of recent earnings and broader economic resilience.
• We also have positions in developed government bonds, favouring UK Gilts and US Treasuries over Japan. We believe in the merits of long duration positions in a portfolio construction context, to provide diversification to equity risk. We expect Western central banks to look through potential future Trump policies to remain in easing mode through the rest of the year.
• Moving forwards, the key risks for investors are whether Republicans can indeed deliver a majority in the House of Representatives, and then longer term the potential impacts of any new trade policies and interventions post Trump’s inauguration. These could affect global capital flows and trade, as well as the macro-economic landscape.

Important information

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