Chart in Focus: Is the “Trump trade” real?

Investment implications

• The election conclusion has put an end to speculation based on the two candidates and their wide range of respective policy outcomes. Market volatility associated with uncertainty can ease and the market can narrow its focus on policies instead of possibilities. In the short term, positive tailwinds that stood to potentially benefit risk assets prior to the election are still in place and should be buoyed by renewed optimism for corporate tax cuts.
• The Fed seemingly had tempered inflation and was navigating a soft landing prior to the election; Trump’s victory brings the possibility of higher inflation and could lead to a slower Fed rate-cutting trajectory. Developed rate markets have already begun to price in the news, but similar to moves in other asset classes, may be premature should policies not materialize in the short term.
• Investors should closely follow ongoing events but beware the temptation to chase the market before the dust settles given market overreactions may occur. Maintaining a nimble, diversified portfolio that is able to capitalize on short-term dislocations is the true north.

What we are watching

• Political appointments that may signal policy outlook in both foreign and domestic affairs; appointments thus far are perceived as hawkish on subjects like immigration and China.
• Don’t take your eyes off the Fed; continue to monitor progression on the soft landing via signals like inflation, employment, and GDP data. Longer term, the counterbalancing impact of deregulation measures versus tariffs on the economy and inflation.
• Within geopolitics, Trump has affirmed his desire to exert pressure and end global conflicts in Ukraine and the Middle East while increasing usage of economic tools (tariffs, sanctions) to address conflicts in trade.