Election Implications
Last week, Donald Trump was re-elected for a second non-consecutive term to become the 47th President of the United States. The Republican Party has also won a larger-than-expected majority in the Senate as well as a majority in the House of Representatives. The net result is a once unexpected republican sweep in Washington. Below, we detail major economic policy implications of a Republican sweep, what the economic effects could be, and possible portfolio implications.
Trade – We are likely to see tariffs on imports from China averaging an additional 20%. Trump has also proposed an across-the-board tariff on imports of 10 to 20%, but we would likely see a smaller scale tariff in place. Goldman Sachs Research expects Trump’s tariff policy to provide a boost to core inflation of around 0.5% and provide an initial drag on economic growth. The implications of this type of tariff policy and its subsequent economic effect would mean a slower path of rate cuts from the Fed, as inflation would likely fall at a slower rate to their long-term target. This policy would also mean a higher floor on Treasury yields and long-term interest rates. Lastly, market performance would likely favor domestic companies, multinationals, and some major emerging markets.
Taxes – A full extension of the 2017 tax cuts are set to expire at the end of 2025. Trump’s campaign proposals would also indicate Congress would attempt to propose modest additional tax cuts, but they would likely be scaled down. One policy, which had been floated, was to reduce the statutory domestic corporate tax rate from 21% to 15%. This policy would likely boost domestic company earnings by 4 to 5% according to Goldman Sachs. Small and mid-size companies are more sensitive to changes in tax rates, so we would likely see better performance of small and mid-cap stocks.
Immigration – A Republican sweep would likely reduce immigration to around 750,000 per year – below the one million per year pre-pandemic trend. Intense debate is prevalent about the net effects of lower immigration numbers as well as a possible mass deportation which has been proposed by the Trump administration in the past. Overall, less immigration could drive wage growth higher, which would also influence long-term inflation higher than the decade before Covid.
Acumen remains optimistic about exposure to high-quality companies which can pass along higher costs to consumers, strategic emerging market exposure focused on areas such as India and Taiwan, and small and mid-cap stocks which have much lower valuations than we have seen historically and could benefit from renewed tax policy. We will continue assessing the possible policy agenda of the upcoming administration and its implications for client portfolios and financial plans.
The opinions expressed in this commentary should not be considered as fact. All opinions expressed are as of the published date and are subject to change. The information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investments in securities involve risk, will fluctuate in price, and may result in losses.
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