Markets react to US election results

Ruth Harris, Investment Research Analyst

Markets are adjusting to the US election results and the news of a second Trump presidency. US equities have rallied as investors return to ‘Trump trades’, pushing money into stocks anticipated to benefit from the results. Small caps have been a major beneficiary, with Russell 2000 futures up over 6% as of 1pm GMT, as Trump’s policies are broadly considered favourable to smaller businesses.

Globally, the impact on equities has been mixed as investors digest the news. Trump has pledged higher tariffs which would have a significant impact on global trade, though their extent and timing is unclear. In response to the results, Chinese equity markets fell driven by tech stocks as investors anticipate weaker US import demand. The picture in Europe is mixed, with an overall rise in the Euro Stoxx 600 obscuring falling share prices in auto companies particularly exposed to US trade.

In bond markets, US Treasury yields have climbed as the market predicts lower taxes, increased spending, and the potentially inflationary impact of trade tariffs. Despite a surge in the US Dollar overnight and higher inflation expectations, investors continue to price in a 25-basis point reduction in interest rates from the Federal Reserve this week.

We expect to see heightened volatility in global markets in the coming weeks as the extent of Trump’s policy implementation becomes clearer.
 
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