Investing post the U.S. Presidential election

By Jayson Forrest

With the newly elected Trump administration heading to the White House, what does this mean for markets and investing? Will it be a return to the status quo or are we heading into a period of greater volatility? Toby Lewis (Harbour Reach), Grant Feng (Vanguard), Brad Amoils (Axiom Investors), and Steve Malin (Vinva Investment Management) unpack the 2024 U.S. election result and explore what this means for investment markets.

Undoubtedly, the main driver of global consumer sentiment over the past few years has been high inflation, and while inflation is beginning to ease globally, the recent U.S. Presidential election continues to weigh on sentiment.

According to Toby Lewis, CFA — Founder, Director at Harbour Reach — the Trump victory warrants a more tactical risk-on positioning within portfolios, meaning investors should get ready to position more defensively, as the likely imposition of U.S. tariffs will weaken an already slowing global economy.

In addressing the topic of investing post the 2024 U.S. Presidential election at an IMAP Independent Thought Roundtable, Harbour Reach’s base case for the global economy is consistent with the International Monetary Fund’s (IMF) World Economic Outlook (October 2024), which points to relatively robust growth in both China and the U.S., while other economies are likely to fall in and out of recession over the short-term.

However, despite this assessment, Toby believes growth will generally slow globally over the next five years, which means investors are likely to see “the lowest economic growth in a generation”.

“Where we are in terms of the economic cycle, if we do see a downturn in the U.S. and continued deceleration in growth, the ‘get out of jail free’ card we had in the last couple of cycles with a resurgence in emerging markets in global trade, simply won’t be there this time,” he says. “That’s because the monetary policy of central banks are all now synchronised. So, economically speaking, that ‘put option’ isn’t quite there in the same way it was in the past.”

Toby adds that from a monetary policy perspective, the chances of central banks over-tightening policy which leads to a slowdown in 2025 and 2026, is actually a bigger risk now than it normally would be. He believes it’s important for advisers to be aware of this risk when constructing portfolios. 

Following Trump’s recent U.S. Presidential election victory, the Republicans now enjoy control of Congress — with a majority in both the House of Representatives and the Senate. However, Toby is concerned there is still not much detail about Trump’s policy agenda. What we do know is he favours income tax relief for wealthier households, and Trump has outlined his intention to decrease corporate tax rates from 21 per cent to 15 per cent for goods and services produced in the United States, which will also impact state taxes.

“We’re heading into a situation now where the growth impulse in the U.S. is probably lower, as it deals with a significantly larger deficit. Trump’s talk about imposing tariffs will lead to a short-term price shock, which will result in lower GDP growth. There’s also a high probability we’ll see more quantitative easing.

“So, with a Trump administration, not only are we likely to see a lot more problems with the U.S. deficit, but also more broadly with economic growth, as the labour pool possibly shrinks, which will put pressure on wages growth.”

In relation to the effect of the outcome of the 2024 U.S. Presidential election, Brad Amoils — Managing Director and Portfolio Manager at Axiom Investors — says it’s important to note that these types of electoral cycles don’t really affect markets.

“Remember, markets can outperform, regardless of whether it’s a Democrat or Republican government, including which party has the majority in either the House or Senate,” he says. “However, what is important to consider is that markets hate surprises, like a sudden change in policy.

“Unfortunately, we still don’t have a lot of clarity on Trump’s policies, but I believe what we will experience is a continuation of some of the status quo we’ve seen over the last eight years, which markets will respond to fairly well.”

In a post U.S. election environment, Brad says Axiom Investors continues to prefer dynamic growth stocks. He believes that clearly favours the U.S., which continues to have the best flow of capital towards disrupted and evolving sectors, and to the companies operating within them.

“Our largest stock for the last couple of years has been Nvidia, which is up 180 per cent this year. Earnings have moved from $1.25 to probably about $4.00 next year. This is almost a fourfold increase, which has also seen the stock price go up twofold,” says Brad.

“There’s no doubt that stocks in the ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) can be seen as being expensive. So, there are definitely opportunities in identifying emerging companies that are going to disrupt, deliver and outpace their competitors.”

When considering the future performance of companies, Toby says it’s very difficult to build a reliable macro model that predicts company earnings. Excluding the ‘Magnificent Seven’, he believes the chances of having double digit earnings growth over the next three years is “slim to none”.

“You have to look at what the sell/sale estimates are with a lot of scepticism. The only way the market multiple as a whole makes sense is if you were going to see 10-15 per cent earnings growth over the next three years and beyond.”

In relation to valuations, Steve Malin — Lead Portfolio Manager at Vinva Investment Management — believes that most regions are sitting at above average levels, but certainly not at extreme levels, with the exception being large cap U.S. tech.

With U.S. productivity growing back to trend, the development and rollout of technology, such as artificial intelligence (AI), and the significant investment in these technologies, is likely to provide opportunities for investors.

“As a result of the adoption of technology like AI, there definitely will be a boost to productivity. Once AI is fully adopted by the global economy, you can expect to see outperformance by many companies that adopt this technology,” says Grant Feng — Senior Economist, Asia-Pacific at Vanguard.

However, he accepts we are still some way off where AI will deliver this expected boost to productivity. Brad shares this long-term view. He compares the evolution of AI to aviation, adding we’re just past the point of where the Wright brothers were and are still many years away from reaching the ‘Jet Age’.

“When we hit this point, that will dramatically impact and transform the world as we know it,” says Brad. “But that will take a while to happen, as well as an incredible amount of capital. Our view is that through the combination of secular and cyclical benefits from using AI, as well as the effect of global monetary policy, this will allow markets to better withstand volatility.” 

Vinva Investment Management is a big believer in the future of AI, having used iterations of this technology to help with its investment process for about 15 years. According to Steve, Vinva currently uses AI across a range of data sources, like research reports and news items, which allows it to analyse and identify market trends and emerging thematics.

Concerns over deglobalisation continue to ramp-up, with both the U.S. and European Union (EU) talking tough over issues like trade imbalances, including threats about imposing trade tariffs on countries like China on products including electric vehicles. However, Grant acknowledges that the move towards deglobalisation and the imposition of tariffs can also be seen as a move to actually open trade up, enabling countries to not be as reliant on one market — China.

Grant believes a Trump government is likely to introduce higher tariffs on Chinese made goods, possibly as high as 60 per cent. Based on Vanguard’s estimation, that will drag down China’s GDP growth to about 1-1.5 per cent.

However, he adds that while the United States looks to decouple from Beijing — with China no longer the largest trading partner of the U.S., with other countries like Canada, Mexico and the EU taking over — China’s trade with the U.S. is also declining, with ASEAN and emerging Asian economies (as well as the EU) becoming its largest trading partners.

Yet, despite these developments, China remains firmly embedded in the global value chain through its ‘Greater China’ policy, which encourages Chinese manufacturers to own and operate businesses in emerging economies like Vietnam, Malaysia and the Philippines. Therefore, the fact that direct China/U.S. trade may have declined, it doesn’t mean the greater China/U.S. relationship has shrunk.

Grant explains: “The U.S. may be buying less products directly from China and instead, buying more products directly from countries like Mexico and Vietnam. However, Mexico is buying more products from China, which is then sold to the United States. Effectively, this means the U.S. is still buying products from China but indirectly. This is happening across the global value chain.”

In addition, Toby adds there are nuances to consider in relation to China. He points to Beijing’s issue with its current account surplus and declining demographics, which means it needs external markets for continued economic growth. He says that from a security perspective, while the EU is likely to impose tight limits on what can be traded with China, it becomes a balancing act, as some EU countries, like Germany, remain very dependent on the Chinese market, particularly in relation to car manufacturing.

“So, while the EU has to reach a compromise with China, other Western countries — like the U.S., Canada, New Zealand and Australia — can afford to step back a little bit more from China,” he says. “We’re definitely heading into interesting times post the 2024 U.S. elections.”  

Toby Lewis, CFA is Founder, Director at Harbour Reach; Grant Feng is Senior Economist, Asia-Pacific at Vanguard; Brad Amoils is Managing Director and Portfolio Manager at Axiom Investors; and Steve Malin is Lead Portfolio Manager at Vinva Investment Management.

They were part of a panel discussion on ‘Investing after the U.S. election — Diverse views on global strategy’.

The session was moderated by Kieran Canavan — Founder and Chief Investment Officer at Centric.