So, there was kind of a big election last week in a little country called the USA. As we all know, Mr Donald Trump (aka “The Donald”) will be taking up residence in the White House for a second time after he won the election by defeating current Vice President Kamala Harris.
Whatever political stripes–or alliances–that you had going into the election, there’s no doubt that a second Trump presidency will have an impact of sorts on global financial markets. However, that’s a question for another day given he only actually starts being President again on Inauguration Day, which is 20 January 2025.
Even so, we’ve seen some pretty “big league” moves in financial markets, including a stronger US dollar and soaring stock markets as well as Bitcoin, that have impacted not only US investors but investors around the world, including us here in Singapore! Given how open Singapore’s financial markets are, that seems inevitable.
But understanding what happened in markets last week–and more importantly, why–can help us put things into context for when President-elect Trump takes office. Here’s what Singapore investors need to know about why markets moved last week when Trump got elected as President.
Stock markets celebrate Trump win
Alright, so let’s set the stage. Betting markets had already “priced in” the fact that Trump was the favourite to emerge as the winner of the presidential election on 5 November. As a result, stock markets (and many investors) had positioned themselves for that outcome and, when Trump actually did win, stocks rallied HARD.
That happened despite the fact that the S&P 500 Index was already up just over 20% so far in 2024 prior to the election. After it became clear that Trump was taking key battleground states, and the presidency along with them, the S&P 500 Index actually finished Wednesday (6 November) up by 2.5%. The key stock market index also gained last Thursday and Friday too.
All in, since Trump clinched victory, the S&P 500 Index is up 3.7% over three trading days (6 November to 8 November). Of course, whether this optimism in the market stays around is anyone’s guess but there are a few reasons for why stocks rose on his victory.
First off, there was the certainty of an outcome. Remember all the drama of the 2020 presidential election, when Trump said there was voter fraud going on and some states didn’t declare a winner for days? Well, this time it was clear relatively early on that Trump was going to win.
And, as we all know, markets “like certainty”. Hence, that initial stock market rally was more a sigh of relief that we got a clear winner from the contest given how many pundits predicted it was on a knife-edge.
Of course, Trump being a Republican, there were also political leanings to take into account. During his first term, one of his big acts was to push through the Tax Cuts and Jobs Act (TCJA) in 2017 that saw some big cuts to corporate income tax rates.
Those cuts were estimated to have helped listed companies post better earnings per share (EPS) growth during the couple of years following its enactment. As a result, the market is optimistic this time round that a second Trump presidency would see more such tax policies that would be favourable to American companies.
Remember, markets love anything that’s going to help companies grow their earnings faster than usual because earnings growth is a big driver of stock prices over the long term.
Trump’s Bitcoin boost
Ok, so Trump talks a lot–we know that. A lot of that talk, pre-election, was about how he’s a massive fan of cryptocurrency. Believe it or not, he even announced the launch of a new cryptocurrency exchange called World Liberty Financial.
He campaigned on being super pro-crypto and also said that on “day one, I will fire Gary Gensler”, a reference to the chairman of the Securities and Exchange Commission (SEC)–the main financial services regulator in the US–who’s known to have an aggressive approach when it comes to regulating cryptocurrencies.
So, it was not exactly surprising to see the price of Bitcoin soar when it became clear Trump was being elected a second time. Indeed, since Trump’s victory, Bitcoin is up by close to 20% and hit a record high of over US$80,000 earlier this week. In the past month, Bitcoin is up an incredible 34%.
Of course, whether any of this actually becomes a reality is anyone’s guess but investors are certainly excited by President-elect Trump’s more liberal approach to cryptocurrency regulation in the US. For those of us in Singapore, should we be buying crypto or Bitcoin just because of Trump?
Honestly? That’s not the best reason to be FOMO buying it right now. We have no idea whether he’s going to actually make any headway with the reforms he proposed and the run-up in price seems to be based on a lot of “best-case scenarios” playing out when he’s in office.
In fact, for those of us in Singapore who are crypto bulls, the launch of Bitcoin ETFs by the likes of BlackRock’s iShares and Fidelity (at the beginning of 2024) was a much bigger deal as it opened up the asset class to more people and legitimised it in a lot of investors’ eyes.
Make the US Dollar great again
One of the biggest moves on the presidential election victory for Trump was that the US Dollar strengthened against all major currencies in the world. That was also true of the US Dollar increasing versus the Singapore Dollar. Since his win became clear, the Singapore Dollar has weakened by 1.13% versus the American currency. Why’s that the case, though?
It basically comes down to Trump’s proposed policies and how that ties into the US Federal Reserve’s interest rate policy. Some of Trump’s crazier ideas, like deporting millions of immigrants and whacking 60% tariffs on all goods coming from China into the US, could cause higher inflation. Beyond that, though, any potential tax cuts will also be viewed as being more inflationary.
Of course, the Federal Reserve looks at inflation as one of its main indicators of where it should set interest rates. While “higher for longer” might sound like a bad ad tagline for a Bangkok-based weed company, it actually refers to the Fed having to keep interest rates higher than normal for an extended period of time.
With uncertainty about what a second-term President Trump would actually do when he’s in office (he’s seriously unpredictable!), the market thinks the Fed may be more cautious in cutting interest rates. That potentially slower decline in rates means a stronger US dollar given other major economies around the world are continuing to lower their interest rates.
Straits Times Index hits 17-year high on banks
That whole “higher for longer” scenario has also had knock-on effects for the stock market in Singapore. While Singapore banks have, admittedly, come out with some strong earnings last week, some of the optimism surrounding the shares of banks is that interest rates could remain elevated for some time.
That’s actually a positive thing for not only Singapore banks but all bank stocks, as long as the global economy doesn’t fall into a recession.
That’s because banks make a pretty penny (i.e. boatloads of money) from charging us/companies a high interest rate on loans and paying us a very sad amount of money in interest. The profit that is generated from this “spread” in the loan and deposit rates is what’s referred to as “net interest income”.
With interest rates staying higher, the local benchmark Straits Times Index (STI) actually hit a level last Friday (8 November) that it hasn’t reached since October 2007. All three bank stocks play a significant role in the STI and together make up nearly 50% of the index.
Uncertainty longer term but that usually doesn’t matter
While financial markets certainly cheered the Trump victory, there is less visibility over what actually happens from here (as is usually the case). Trump’s unpredictable and volatile nature means investors can’t be sure what will be a priority for him when he gets into office.
The markets may also be overoptimistic about how much a President Trump could accomplish once he’s in office as presidential ambitions are usually hindered by political realities. However, because the Republicans now also have a majority in the Senate, President Trump’s biggest policy priorities could be easier to enact.
Regardless of all this, financial markets will continue to function as normal and, longer term, we have seen all the data (e.g. Dimensional Fund Advisors) about how US presidents don’t really impact the long-term direction of stock markets or a range of other assets. So, while it’s useful to know what’s been happening recently and why, we should remember not to base any of our long-term investment decisions on what’s happening in politics.
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