How would the markets react to the victory of US republican candidate Donald Trump in the US election on 8 November? Mark Burgess, CIO EMEA and global head of Equities at Columbia Threadneedle, has considered the market impact of such a scenario.
Burgess suggested that Trump’s actions right after his election is a key question “that will create a great deal of uncertainty and could arguably be the making or breaking of a Trump presidency.”
“Unlike his opponent Hillary Clinton, Trump did not spend his campaign creating a myriad of policies and proposals; so much of what will be implemented is up for debate (…) Although there is much Trump must do to succeed in his goal as president, perhaps his lack of policy proposals will work in his favour as there is little he will have to go back on and take away from his plan,” he argued.
Burgess assessed the democratic/republican split in the US Congress will be a key indicator to look at if Trump wins, adding that a democratic majority in either the House of Representatives or Senate would restrict the more radical changes Trump has proposed.
Burgess recalled that republicans have been historically market friendly defending pro-growth, pro-defence, pro-big pharma, anti-regulation and balanced budget positions.
But he stressed Trump views slightly differ as the republican candidate favours tax reform, anti-trade and anti-immigration policies and expresses the desire to unwind the ACA.
“In some ways this could be good for business and the domestic economy as a whole. However, it is said that “there is no such uncertainty as a sure thing” and with Trump’s unpredictability it is likely to bring uncertainty to the markets,” Burgess added.
According to Columbia Threadneedle’s global head of Equities, a Trump win will likely lead the US dollar stronger initially “in a risk-off, buy dollars move.”
He called “a big concern” the promise done by Trump of bringing back the gold standard if he carries it out.
“Can Trump have missed the recessionary economic environment the world has been in for almost a decade? The pros of a theoretical gold standard that ties the US dollar to the price of gold would be: preventing excessive printing of money by the Fed; keeping inflation low and so slowing the increase in consumer prices; stabilising oil prices; and, of course, gold retains value which is recognised across the world,” said Burgess.
Impacts on equity markets will be mixed, Burgess gauged, with infrastructure being an obvious winner in terms of sectors.
He specified the focus would be on roads, bridges, airports and sectors that would benefit from M&A and industry consolidation, which Trump is particularly enthusiastic about.
“Financials will benefit from loosening of the Dodd-Frank regulations. Furthermore the defence sector is likely to thrive. Other sectors likely to do well include consumer discretionary, consumer staples, telecoms, energy and mining. A Trump win is unlikely to be great news for the US bond market as inflation break-evens rise. In particular, his proposed policies would lead to substantial budget deficits, steepening the curve somewhat,” Burgess assessed.
Burgess believes no major legislation would be likely to pass in the first year of a Trump mandate but he highlighted most important achievements for a president should happen within the two first years of the term, before the next presidential election cycle looms.
“Of course, the first two years of a Trump term may be dominated by punishing the losing side and members of Congress proving their conservative credentials, but there is a space where a Trump president can make real changes that will be reasonable and tempered. We will have to see,” Burgess concluded.