With Donald Trump expected to win the White House, the US dollar and the stock market are seen as winners, according to Edison Research, but a Republican presidency could weigh on bonds, emerging markets, clean energy and sustainable investments.
Here’s how:
Currencies
Trump’s presidency is seen as strengthening the US dollar, with investors expecting his policies to lead to higher inflation and growth than would have been the case under Democrat Kamala Harris. That means the Federal Reserve needs to keep interest rates high to prevent the economy from overheating, which in turn would be bullish for the dollar.
At the same time, Trump’s plans to impose trade tariffs, force European allies to pay more for defense and distrust of multilateral institutions are likely to stifle growth elsewhere in the world, boosting the dollar’s appeal. Citi analysts expect the dollar to rise 3 percent after a Trump victory. Analysts expect a sharp decline in the euro, possibly below the key $1 level, as tariffs and domestic tax cuts follow. They also expect the Chinese yuan to fall further, as it did in 2018-2020, when it depreciated rapidly.
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Higher dollar yields will also mean a return of carry trades, with currencies such as the Japanese yen and Swiss franc already sold off heavily in the run-up to the election.
Still, the Swiss franc will find support, analysts say, thanks to the country’s higher exports shielding it from tariffs and the currency’s tendency to outperform during periods of higher inflation. With the Trump administration expected to take a softer stance on cryptocurrency regulation, Bitcoin is another potential winner. The world’s largest cryptocurrency rose to a record high on Wednesday.
Stocks
Trump’s promise of less regulation and lower taxes for big companies, more oil production and tough immigration policies point to stronger growth and inflation, which is seen as positive for stocks. Sectors such as banking, technology, defense and fossil fuels are likely to benefit.
His plan to cut corporate taxes from 21 percent to 15 percent would boost S&P 500 profits by about 4 percent, Goldman Sachs estimates.
Still, it is not yet clear how much of Trump’s tax cut plan will pass Congress. At the same time, his protectionist policies and tough stance on China would increase costs, reduce profitability and harm multinational companies.
Outside the United States, a strong dollar, rising U.S. interest rates and trade tensions will see defensive sectors outperform and multinational companies with exposure to U.S. markets take a hit.
Sectors exposed to rate changes, such as semiconductors, automotive and clean energy, are likely to be volatile. Investors ahead of the election outcome have exited positions in Japanese stocks, where carmakers dominate, and in European electric vehicle and chip stocks. Barclays has warned of possible declines in European profits by “high single digits” if trade disputes flare up again. Europe’s defense sector is likely to have a mixed outcome after Trump said he will end the war in Ukraine but also said European allies should spend more on defense.
Bonds
Investors have become increasingly concerned about the size of US government debt and the budget deficits that are still contributing to it, worrying that this will drive up borrowing costs or government bond yields. By one estimate, Trump’s spending plans could increase deficits by $7.5 trillion over 10 years, far greater than what Harris proposed. Treasury yields rose nearly 50 basis points in October as markets priced in a greater chance of a Trump victory.
Inflationary pressure from Trump’s policies would give the Fed less room to cut rates, keeping government bond yields high.
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A Trump victory is also likely to stifle growth in Europe and Asia, as tariffs and other policies put pressure on those economies. More pressure on the euro, yen, Swiss franc and other currencies, and higher inflation, will reduce the room central banks have to cut rates if necessary. Analysts expect global interest rates to rise.
Raw materials
Trump will seek to maximize U.S. oil and gas drilling by expanding federal leasing where possible and rolling back environmental regulations — a policy agenda that all but guarantees the country will remain the world’s largest oil producer. That robust supply could help keep U.S. West Texas Intermediate crude futures, which are down about 4 percent so far this year, relatively low. On the other hand, he is likely to step up enforcement of oil sanctions on Iran, something that could crimp some of the global crude supply. He has also said he will replenish the Strategic Petroleum Reserve to unprecedented levels, which could support prices as the government enters the markets.
Soybeans are also in the crosshairs. U.S. traders rushed to ship a record crop before the election, fearing renewed trade tensions with China, the world’s biggest soy importer. China, which failed to fully comply with a 2020 agreement with the Trump administration to buy more U.S. agricultural products, has bought fewer U.S. soybeans and almost no corn this marketing year. Soybean prices are down 25 percent compared to a year ago.
Emerging markets
Even before the election, concerns about Trump’s policies weighed on emerging economies. In addition to the tariffs on China, Trump has said he would impose a tariff of as much as 200 percent on Mexican vehicle imports. The Mexican peso could weaken above $21, a level not seen in more than two years, analysts say.
Another potential headwind for emerging markets: Trump’s vice presidential candidate JD Vance has proposed a 10 percent tax on remittances, which is important for many Latin American economies. The South African rand, the Brazilian real and the stock markets in these countries are vulnerable if tariff increases occur, as are chipmakers in Taiwan, South Korea and other countries that produce for Chinese technology companies.
A sell-off in government bonds and a rise in the dollar will also drain money from emerging markets and force tighter monetary policy in many countries. Emerging economies with domestic growth and reform stories, such as India or South Africa, could benefit and become a haven in otherwise volatile global conditions. Copper and lithium producer Chile could largely be spared due to the less fungible nature of its exports.
Sustainable investing
A Trump victory would allow him to make good on campaign promises to roll back green regulations restricting oil and gas drilling and mining, which could boost stocks in those sectors.
Trump has also said he would “revoke all unspent funds” under the Inflation Reduction Act, the Biden-Harris administration’s signature climate law that includes hundreds of billions of dollars in subsidies for electric vehicles, solar and wind energy. But moves that could actually send stocks in these sectors lower may require action from Congress, and several Republican lawmakers have expressed support for at least parts of them. Trump has also promised to fire Gary Gensler as chairman of the U.S. Securities and Exchange Commission. That would be a setback for the ability of U.S. sustainable funds to pressure companies for policy changes and potentially make these funds less attractive. The funds have experienced net withdrawals since 2022 as high energy prices hurt relative returns.
