‘My Way’ – Trump v Harris and an extraordinary US election victory
What does Trump’s victory mean?
An aspect of the US election campaign that has fascinated us was the eclectic mix of Republican music choices as Trump worked his energetic campaign across the country.
From 1980s ‘Glam Rock’ such as KISS to Phil Collins and 1970s icons, The Village People, the rallies have been a combination of pure theatre and hyped-up policy claims as Trump played to his audience and doubled down on his unconventional approach to electioneering.
But behind the showmanship, there’s a serious undertone behind ‘Trumpism’. To understand the popular groundswell of support for the former President, one has to try and understand the basis of the Make America Great Movement (MAGA).
It’s difficult to reconcile the feeling of discontent for this growing segment of US society as we sit across the Pond looking on in envy at America’s incredibly strong economy, becalmed inflation and persistently low levels of unemployment.
Add to the mix, an equity market that has hit multiple record highs throughout the course of this year that it’s perhaps somewhat surprising that the electoral race was predicted to rest on a razor’s edge. It begs the question: Why are so many Americans discontent with the economy and place it top of their considerations when voting for the 47th President of the United States?
Examining the thrust of the MAGA movement
To answer that question, we need to examine the thrust of the MAGA movement. At its core, is a belief that the manufacturing heart of America has been hollowed out, increasingly losing out to cheaper foreign competition which has led to a depletion in real wages, rising income inequality and the decay of entire communities.
“The MAGA movement perceives that America is a failing superpower drifting into irrelevance as the US loses both its industrial heartland and legacy of technical innovation.”
Rather like Turner’s iconic painting, The Fighting Temeraire – which depicts one of Nelson’s sail-powered warships from Trafalgar being towed into the sunset by a steam-powered tugboat for decommissioning 30 years later – the MAGA movement perceives that America is a failing superpower drifting into irrelevance as the US loses both its industrial heartland and legacy of technical innovation.
Whether there has indeed been a collapse in the benefits of free market trade and globalisation, it does perhaps speak volumes that the Biden administration kept tariffs imposed under the former Trump administration on Chinese goods in place and added further bite to a range of measures in an effort to curtail the rise of China’s technological advance for both commercial and military purposes.
Further fiscal expansion lies ahead
With Trump on track for a solid Electoral College victory, the next few weeks will determine how much influence the President will have through Congress. The Senate is now in Republican hands after four years of Democratic control, which will help Trump’s political appointees in Cabinet and in the judiciary, who require Senate confirmation, with the outcome of the House of Representatives to follow.
The seeds had already been set for further fiscal expansion, despite the long-term cost of borrowing, with the US budget deficit running close to 7% of GDP* nearly double the long-term average, which is unprecedented given the country isn’t in recession and is pretty much at full employment.
Short term, this expansion should be good for the economy and while it may be inflationary, we’ve seen, post-Covid, that US corporates are ultimately able to pass their costs onto the consumer and maintain their profit margins. In an economy where around 70% of GDP is powered by consumer spending, the ability of the consumer to absorb those additional costs is critical, although it’s noteworthy that a rise in grocery prices under the Biden administration seems to have played a significant part in the Democrats downfall as the cost of living spiralled post Covid and Ukraine.
“Deciphering the impact of a Trump administration is challenging given the huge variables between rhetoric from the self-proclaimed ‘Tariff Man’ to actual policy on the ground.”
President-elect Trump is expected to continue with conservative economic policies, deregulation, and a strong stance on immigration with foreign policy likely to focus on ‘America First’ principles, with potential for strained international relations.
While a win for VP Harris was likely to be a continuation of the status quo and benign for the US market despite potentially higher corporation taxes, deciphering the impact of a Trump administration is challenging given the huge variables between rhetoric from the self-proclaimed ‘Tariff Man’ to actual policy on the ground.
What does Trump’s victory mean for portfolios?
Higher tariffs, a labour shock from immigration restrictions, and structurally higher deficits suggest that the US economy will face higher inflation and higher interest rates. Higher rates could constrain any short-term upside from smaller and medium-sized companies that tend to have a more domestic revenue orientation than their large cap brethren which under Trump’s first term initially rallied furiously.
While we anticipated some short-term volatility around the election results, we maintained a neutral position to US equities with very broad exposure across the entire market spectrum of micro, small, medium, large and mega-sized capitalised companies.
This provided portfolios with the widest possible spread of industry sectors and future earnings growth regardless of the election outcome.
This approach worked well for portfolios during Trump’s first term in 2016, despite a general consensus that a Trump regime would be negative over the medium term for US equities. It also provided the type of exposure that performed well over the Biden administration.
“Higher yields could lead to a future air- pocket for equites if they rise too quickly or are elevated on inflation adjusted returns compared to growth.”
We witnessed a reflationary uptick on the run up to the election with a rise in US bond yields with improving betting odds on a Trump Presidency combined with improving economic data.
US equities should be able to absorb higher bond yields with a stronger economic trajectory, however higher yields could lead to a future air-pocket for equities if they rise too quickly or are elevated on inflation adjusted returns compared to growth.
These considerations will be central to any portfolio activity going forward as we enter 2025. In the meantime, Frank Sinatra’s ‘My Way’ would be a tremendous choice to round off the Trump campaign and his extraordinary victory.
* Bloomberg, November 2024.
Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire, and the surrounding area, but not limited to the region.