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US ELECTION UPDATE
What Can We Expect from the Result in the Coming Years
Election Results
It is official; Donald Trump is the President Elect, and will return to the White House after a decisive victory. With Republicans now controlling the Presidency, House, and Senate, the policies of this administration will have few limitations on implementation. The policies of particular interest for investors is with the proposed changes to the energy sector, international trade, federal spending cuts resulting in personal and corporate tax cuts and most importantly deregulation. President Trump's pro-growth approach could boost stock markets and tighten credit spreads, creating a favorable environment for US equities.
If Republicans pass fiscal legislation through a budget reconciliation process, it could very likely increase the budget deficit, leading to a sell-off in long-term government bonds. This could eventually slow down the stock market’s upward momentum if left unchecked. However, it appears this administration is also serious about lowering the wasteful spending in government, and look to offset this deficit through his newly named Department of Government Efficiency (led by none other than Elon Musk). One of their mandates is to slash regulations and cut wasteful expenses in government spending.
The Yield Curve
10-year Treasury yields have risen, which helps eliminate the inverted yield curve we have had since July 2022 (the longest inverted Yield curve since the 80’s). As the yield curve steepens, the U.S. dollar will likely stay strong, especially against currencies like the Chinese Yuan, Mexican Peso, and Euro, which will be a headwind for some international companies. Keeping in mind that inverted Yield curve’s have typically preceded a recession and that the Federal Reserve has continued to lower rates, with the latest announcement on November 7th it adds complexity and risk to a generally optimistic long term outlook.
Trade Policy
China will be a major focus of U.S. trade policy under Trump. There is broad support for tougher trade measures to protect U.S. industries, especially because many believe China has unfairly hurt U.S. manufacturing. This includes issues like intellectual property theft and trade barriers that limit U.S. competitiveness. Trade policy will be one of Trump’s top priorities, and he is likely to use tariffs as both a direct tool and a way to negotiate better deals with other countries. Some of Trump’s proposed tariffs are quite aggressive, including a 10% tariff on all imports and a 60% tariff on China. Other countries, (notably Canada), could be affected by these policies as well, which could cause a more regional impact to us as Canadians. Thanks to the current U.S.-Mexico-Canada Agreement (USMCA) however, Canada and Mexico are somewhat protected at the moment, but with the agreement needing renegotiation in 2026, it may result in industries like autos, lumber, dairy, and poultry could be impacted.
Conclusion
With Donald Trump’s pending return to the White House on a backdrop of a few concerning economic trends, investors may face a period marked by significant policy changes and potentially cause market volatility. While his pro-growth agenda is likely to boost sectors such as Energy, Technology, and Financials, the early stages of his presidency may bring short-term market fluctuations as his policies unfold. As his positions on tax cuts, deregulation and trade evolve, investors will need to stay focused on the long-term benefits of such changes as they weather any temporary market disruptions. Our stance on investing money for our clients’ remains unchanged. When a plan is in place and your assets are allocated accordingly, we take on the appropriate amount of risk in your portfolio that your planning can withstand.
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