What President-Elect Trump May Mean for Markets

Those who are disappointed by the election’s outcome may be cheered to learn that stock markets have historically risen under both Democrats and Republicans during election years. Markets also love certainty, and now that the elections are over, we have a better understanding of the direction of economic, trade, and tax policy. Indeed, the Dow Jones Industrial Average soared 3.6%, or more than 1,500 points, on Wednesday.

Among the policies Trump floated while campaigning extending the 2017 Tax Cuts and Jobs Act, increasing tariffs, and reducing corporate taxes could have an outsized effect on certain industries. Here’s a look at what the future might hold during Trump’s second time in the Oval Office.   

Prepare for Tariffs.

President-elect Trump has been very vocal about his desire to impose tariffs of 10% to 20% on all goods manufactured overseas and imported into the US. He’s also floated the idea of 60% tariffs on goods produced in China and 100% tariffs on goods produced in Mexico. 

Domestically-produced steel, semiconductors and automobiles are among the products that could have a pricing advantage if competitors’ foreign-produced goods face tariffs. The S&P 500 Steel industry stock price index rose 15.2% on Wednesday in the wake of the election. Conversely, US companies that sell many of their products internationally, like Apple and Proctor & Gamble, could come under pressure if foreign countries enact retaliatory tariffs on American exports. The S&P 500 Household Products industry’s stock price index, which includes P&G, fell 2.8% on Monday. 

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High Interest Rates Return. 

If Trump follows through with tariffs, it is possible they will spark the return of inflation. Tariffs could be paid for by foreign manufacturers or those manufacturers could pass on the cost of the tariffs on to US consumers sending prices higher. Inflation may also return if Trump follows through with his promises to cut many taxes and that causes the economy to accelerate too much.   

Inflation typically results in higher interest rates. As Trump’s odds of winning the White House improved the yield on the 10-year Treasury rose, hitting 4.43% on Monday, November 4th up from 3.62% on September 16th. Higher interest rates could benefit financial institutions, like banks, which fund themselves using short-term debt and generate revenue by extending loans with long-term maturities. The S&P 500 Diversified Banks stock price index rose 10.5% on Wednesday. 

Conversely, higher interest rates could hurt companies selling high-priced products that typically require debt financing in order for customers to afford the purchase. For example, buying or renovating a home could get more expensive if interest rates on home mortgages or home equity loans rise. The same would hold true for anyone funding a car purchase using an auto loan. On Wednesday, the S&P 500 Homebuilding stock price index dropped 3.4%. 

Expect Fewer Regulations. 

President-elect Trump has been vocal about reducing the red tape created in Washington DC that prevents companies from expanding. He has also railed against the environmental regulations put in place by the Biden administration. Both Trump stances are expected to benefit the oil and gas industry. Conversely, “green industries,” like those manufacturing solar panels or installing wind turbines, could face headwinds if tax benefits granted under Biden are halted under Trump. The iShares Global Clean Energy ETF fell 2.1% on Wednesday.     

Tax Cuts on the Way. 

Trump would like to extend the tax cuts included in the 2017 Tax Cuts and Jobs Act. Many of them are due to expire after 2025. Moreover, he’d like to lower the corporate tax rate to 15% down from 21% and he’d like to end taxes on Social Security benefits and tip income. Consumers who have money in their pockets tend to spend it. That could be good news for a wide variety of consumer stocks, like retailers and restaurants. The S&P 500 Retailing Industry Group index jumped 2.3% on Wednesday. 

No matter what the future brings under the new Trump administration, our team is here to help you navigate any changes affecting your portfolio. Book a complimentary consultation to discuss how we can help position your portfolio to respond to changes in the tax law and the markets over the long term.

Authored by Principal/Managing Partner Laurence Hale AAMS, CRPS®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. WHZ Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com.