The aftermath of the US presidential elections has produced some notables moves in global asset classes. With the Republican Party winning a clean sweep of the House, Senate and Oval Office, investors were quick to reprice perceived winners (“Trump trades”) and losers from the new administration. Small cap stocks, banks, cryptocurrencies and the US dollar surged, while gold, long-term bonds and international currencies and stocks faced downwards pressure. Per the chart below, Bitcoin and Tesla have soared in near lockstep since the election. Now that a few weeks have passed and the initial knee-jerk reactions are behind us, it is a good time to assess the merit and sustainability of these recent moves.

While political outcomes, particularly in the world’s largest economy, do have important implications, it’s important not to overstate their importance. Undoubtedly, there will be asset classes that do better or worse under Democratic or Republican administrations, but history has shown that from a high level, there is not a reliable pattern of outperformance under either party. As Trump assembles cabinet members ahead of his inauguration in late-January, we will get more insight into how his team will function and what their policy priorities will be. However, at this point speculation far outweighs facts. Trump’s first term was characterized by a revolving door of advisors and often unpredictable policy actions, which necessitates a more “flexible” analytical framework.

There are a number of Trump trades that make inherent sense to us and should have some staying power. Trump’s affinity for deregulation and low corporate taxation appears to be firmly entrenched. Heavily regulated industries should be clear beneficiaries of a less onerous and costly regulatory environment. Assessing the degree of regulatory sensitivity across industries is a subjective exercise, but banks are a notable standout. The upheaval in US regional banks starting in early-2023 gave rise to fears that a return to a much tighter regulatory environment would be forthcoming. A reversal of the Dodd-Frank financial sector regulation rollback (enacted during Trump’s first term) is now considerably less likely. Smaller, more domestically-oriented US companies should disproportionately benefit from an extension or expansion of tax cuts. Key provisions of the Tax Cuts and Jobs Act, which was originally introduced in 2017, are set to expire at the end of 2025. A reversion to higher taxes is not in the cards.

The sustainability of other recent moves is less clear cut. The US dollar rally and weakness in international assets have been largely attributable to expectations of pro-growth US policy and the impact of tariffs levied on trading partners. These assumptions, while rational, miss some key counterpoints. Firstly, a strong dollar would be a stick in the spokes of Trump’s re-industrialization push. Expansionary fiscal policy would likely be met with “competitive fiscalism” from other nations seeking to keep pace. That said, the degree of US fiscal stimulus may be constrained by the starting point (the fiscal deficit is currently over 6% of GDP), inflation concerns and the recent appointment of Scott Bessent as Treasury secretary. One of the facets of Bessent’s “3-3-3 Plan” is to rein in the fiscal deficit to 3% of GDP. He’s also been outspoken about tariffs being used as a negotiating tactic rather than a key policy implement. Regardless, tariffs are not usually a one-sided affair, and if implemented would most likely draw retaliation from trading partners.

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