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Changechevron_rightThe views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.
Donald Trump has emerged as the clear victor in a highly polarized US presidential election. While the exact level of majority is still unclear, Republicans also gained control of the Senate while the outcome for the House of Representatives is, at time of writing, too close to call. This is a remarkable result for Donald Trump, regaining the presidency for a second time in an extremely tight race. Much will become clearer over the days to come as all the results are tallied and Trump starts the process of putting in place his administration and laying out priorities. Beyond the immediate market reaction, here are some bigger themes that I am watching which I believe will have significant implications for investors over time.
Trump’s victory is likely to accelerate underlying trends around labor supply (weaker), the supply of tradable goods (contracting), and a deteriorating fiscal backdrop. In turn, this dramatically increases the probability of higher near-term inflation, but also higher inflation volatility over the short and medium term, which is critical for the level of yields and term premium. Bond yields had already moved up significantly in the run-up to the election, and continued to do so over the past few hours and may do so further, bringing them more in line with my medium-term structural analysis, which posits that yields on the 10-year Treasury will settle in the 5.5% – 6.0% range over time. Supply-side cuts with fiscal easing are a perfect recipe for a structurally higher level of yields and term premium. Even if the House doesn’t hold for Republicans, I think there is still a strong chance of fiscal easing next year into 2026, as a Democratic House would potentially trade tax cuts for spending increases.
Here is some additional color on these trends:
Overall, I think all these trends continue, but this Trump victory translates into a significant quickening of the pace. The next milestones to look out for in this election cycle are who Trump nominates in key positions, and the sequencing of policies.
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