‘An uncontested win is itself positive for sentiment’

With Trump projected to become President of the United States, Ben Lofthouse explains what this means for the US economy and US investors

 
Ben Lofthouse, Portfolio Manager of Henderson International Income Trust, said: “The equity market is responding positively to the fact that the US election looks like it has a clear winner, and that winner is Donald Trump. US interest rates have been rising over the last week, and have continued to rise today, so the election outcome is considered to be potentially inflationary and therefore negative for fixed income markets.

“People had expected that the outcome would be closer than it looks and were expecting potential disruption. An uncontested win is itself positive for sentiment.

“Whilst the win brings uncertainty for companies in terms of potential tariffs, there has been a general move towards moving manufacturing either closer to or into the US, and a Trump presidency is likely to accelerate that. Mr Trump has campaigned on a mandate that includes further tax cuts for US companies, and less government regulation, which are generally taken positively by investors, and as a result US domestic companies are expected to be beneficiaries. Many US companies we have met this year have attributed lower levels of activity due to caution before the election, so there could be an acceleration of activity in the US post the election.

“It is hard to say what the impact on global markets and inflation will be yet as many of the potential tariff increases are considered by many to be negotiation positions to extract better terms of trade, so may not come to pass, but this will not be known for some time. With regards to inflation globally, if Mr Trump does encourage more oil production in the US (‘drill baby drill’ is one of his mantras) and does succeed in bringing the Ukraine conflict to a close, several commodity markets could see improved supply (fertilizers, wood, oil, gas) which would be positive for many economies. The market is not talking about this because these would be longer term effects of his presidency. In terms of China the impact is unclear until we hear more from their own stimulus plans on Friday.”