What the U.S. Election Means for Arta Members—By Emmy Sakulrompochai, Head of Investment Advisory
November 14, 2024
The summary
Post-election, markets are rising with equities and yields gaining on expectations of pro-growth policies.
Looking ahead, U.S. equities are projected to outperform global markets, with tech, industrials, and financials as top sectors, though trade tensions and deficits pose risks.
Instead of shifting large parts of your portfolio to follow short-term trends, Arta suggests building a long-term diversified, tax-optimized portfolio that includes private market instruments and derivatives & structured products to grow your portfolio while managing downside risks.
Post-election market reactions and outlook
Following former president Trump’s (re)election, markets have responded positively, with the S&P 500 and other equities rising as political uncertainty fades. This reflects expectations of strong earnings growth and favorable fiscal policies, especially if Republicans achieve the now expected "Red Sweep" in Congress, leading to tax reforms and deregulation. However, rising 10-year Treasury yields, driven by potential fiscal expansion, higher deficits, and increased Treasury supply, could limit equity gains if long-term rates continue to climb. Additionally, we expect the U.S. dollar to strengthen due to widening interest rate differentials and expectations of fiscal stimulus.
Looking ahead, Wall Street largely expects U.S. equities to outperform global markets, with many banks and institutions projecting positive performance given soft landing expectations, potential deregulation, and the implementation of pro-growth policies. However, trade conflicts and government deficits could present downside risks to the market.
So, given the recent market reactions, you may wonder what it means for you. Although the election outcome is known, investors still lack clarity on how policies will be carried out, as actions often differ from campaign promises. Instead of chasing recent market trends, focus on what’s clear. Diversification is the best way to protect against uncertainty. While elections help clarify policy direction, a "Red Sweep" could increase market volatility. Given high U.S. stock valuations and the concentration in a few large companies, diversifying your portfolio is more important than ever.
At Arta, we believe the key to long-term growth is staying invested in the market, but achieving this requires a well-diversified portfolio that can be resilient in different market conditions. Our investment approach centers around building a tax-optimized and diversified portfolio, with allocation across asset classes such as High-quality Private market investments and structured products, which can provide growth or income that’s less correlated to public market swings, and derivatives that can help protect against concentration risks in your portfolio. If you would like to learn more about how our approach can work for you, please book time with us.
For more detailed reaction and outlook of each asset class, please refer to the below table.
Market reaction and outlook on each asset class
Asset Class | Reaction | Outlook |
|---|---|---|
Equity | Both large-cap and small-cap stocks rose, with large caps hitting new highs. Industrials had their biggest gain in two years, fueled by expectations of a more "America-first" policy. Small-cap stocks benefited from growth optimism and fewer regulations. | Equities generally perform well 12 months after an election. U.S. stocks are favored, especially in tech, industrials, utilities, and financials. Financials and industrials may benefit from infrastructure investment and deregulation. Healthcare, staples, and energy sectors are less favorable. |
Fixed Income (Bonds) | The 10-year Treasury yield increased, while short-term yields rose slightly. Additionally, the Fed also lowered interest rates to 4.5% - 4.75%. Cash yields remain low and could drop further. | Bonds continue to provide diversification in portfolios. Long-term yields may stay higher due to government borrowing and fiscal concerns while Short-term rates will depend on the Fed’s actions. Both high-yield and investment-grade bonds remain supported by strong economic fundamentals. |
Commodities | Oil was down Gold pulled back after hitting all-time highs, as the dollar strengthened.
| Oil prices may face pressure from policies encouraging more production, making energy stocks less attractive. Gold is still a good hedge against uncertainty and inflation but strong USD may pose challenges to significant upside. |
Currencies | USD had its best one-day performance in two years driven by markets’ focus on onshoring and securing U.S. supply chains, combined with tariff threats. Bitcoin hit new highs, gaining over 10% recently, driven by excitement over deregulation and institutional interest. | The dollar may continue to strengthen due to trade tensions and widening U.S. interest rates. Bitcoin is expected to benefit from the growing institutional adoption and potential deregulation. |
Source: Barclays, JPMorgan, Goldman Sachs
It’s worth taking a look at President-elect Trump’s policy proposal
With election uncertainty behind us, markets will now focus on the incoming Administration’s policy priorities and how they are actually implemented. While not all campaign proposals translate to actual policies, It is worth taking a look at the potential market implications of President-Elect Trump’s proposals during his re-election campaign.
Policy Area | Key Points | Market Implications |
|---|---|---|
Taxes | Aims to extend 2017 Tax Cuts and Jobs Act (TCJA). Proposes keeping the 37% top tax rate and lowering corporate tax rate to 15% for U.S. manufacturers. | Likely to avoid worst-case tax scenarios like higher capital gains taxes. Deficit could increase by $7.5 trillion over 10 years. Tight margins in Congress may limit full implementation. |
Trade and tariffs | Proposes raising tariffs to 60% on Chinese goods and 10% on all imports. Tariffs on China likely, but broader tariffs face legal hurdles. | U.S. dollar may strengthen as markets expect extended "U.S. exceptionalism." Trade tensions could continue. |
Regulation | Advocates for broad deregulation. Big Tech may face mixed impacts, while energy and regional banks may benefit most. | Deregulation could boost sectors like energy and banking, while mixed effects on Big Tech and potential for increased corporate M&A. |
Deficit | Proposed policies could add ~$4 trillion to the deficit. Rising bond yields reflect expectations of looser fiscal policy and higher inflation. | Higher deficit and debt levels, though Congress may limit extreme expansion. Markets expect stronger growth and higher inflation. |
Source: Barclays, JPMorgan, Goldman Sachs
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