November 2024 Insights
AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated. We aim to help investors cut through all the media noise and hype and understand what is really driving investment markets and portfolio returns.
In this edition, we cover:
What Trump’s USA election win means for your investments
Yesterday, Donald Trump claimed victory in the 2024 US Presidential election race. At the time of writing, he has 279 electoral college votes, which is just over the 270 needed for victory.
The Republicans have also won enough seats to reclaim the Senate and could also retain the House of Representatives, giving them a clean sweep. With control of all three branches of government, what can we expect from President Trump’s second term in office? Much of what is said in an election campaign is rhetoric, spoken to woo voters, but we do know a few things a Trump government stands for: lower taxes and less regulation. We have looked at the initial reaction and what the impact of these might have on the markets and your investments below.
Trump inherits healthy USA economy
There have been some concerns that the USA economy may enter a recession and there are also worries over elevated tech stock valuations, particularly in the Magnificent Seven (Microsoft, Apple, Nvidia, Tesla, Alphabet, Amazon and Meta). However, the USA economy remains healthy and the USA Federal Reserve (Fed) has started cutting interest rates. The economy is proving resilient and grew 2.7% for the year to 30 September 2024.
Trump’s tax policies
Trump plans to make the income tax cuts from the Tax Cuts and Jobs Act 2017 permanent before they expire next year. He also wants to reduce corporation tax to 20% and potentially as low as 15% for companies that make their products in the USA. To pay for the tax cuts, Trump wants to introduce tariffs on all imports. The overall objective is to encourage countries, such as China, to invest in manufacturing plants inside the USA to create jobs. Tariffs have the potential to be inflationary through higher prices which subsequently might impact consumer confidence and economic activity. Cutting corporation tax could, according to Goldman Sachs, boost the earnings per share of the S&P 500 by 4% and be a positive factor for USA shares. However, it could also lead to higher government debt.
Deregulating the USA
President Trump has a track record of deregulation, in his first term he lowered fuel efficiency standards for vehicles, scaled back environmental permit requirements and relaxed financial and technology regulations. We expect further changes this time around and that he may extend them beyond what he introduced in 2016. This is because the Supreme Court, which leans to the conservative side, has made it easier to challenge and change existing rules.
Fossil fuels
Trump is supportive of the oil and gas industry but less keen on renewables. With greater control of the USA legislative, he may slow spending and investments in this area whilst removing restrictions on oil and gas companies.
USA – China trade deal
The primary objectives of the tariffs Trump wants to introduce is to encourage International investment, especially from China, into the USA. We expect that they could be used to negotiate a trade deal with China which would be supportive of Asian equities, although it is worth noting that Chinese Equities fell on the news of Trump’s victory.
What should investors expect?
With the likelihood of a Republican clean sweep, investors can expect taxes in the USA to remain low, tariffs on goods manufactured abroad and less regulation in the USA. Overall there is likely to be relief in some quarters that the election wasn’t as close as expected and the risk of civil unrest that followed the 2020 election result doesn’t look like it will be repeated. As the excitement of the USA election fades, investors’ attention will shift back to economic fundamentals and the ability of businesses to deliver shareholder returns.
It is hard to say what exact impact there will be global markets and inflation , as many of the potential tariff increases are considered by many to be negotiation positions to extract better terms of trade, so may not come to pass, but this will not be known for some time. Our view is you should continue to expect the unexpected. Remember, your portfolio is invested in quality companies not politicians.
Aspirations Wealth has not changed our view on markets, however, we remain active and are closely watching not just the USA political implications but also the global geopolitical issues.
Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.