11 November 2024 — The Trump Trade Returns: One Election That Moved Everything

Donald Trump’s return to the White House last Tuesday has produced what traders have been calling “the Trump trade.” When his victory was confirmed in the early hours of Wednesday, the reaction was immediate. S&P 500 futures climbed more than 2%. The U.S. dollar jumped 1.4% — its best session since March 2023. Bitcoin hit a new record above $75,000. Tesla jumped 12%. Trump Media rose more than 60%.¹ By Wednesday’s close, the Dow had its best post-election session on record. The S&P 500 is now at a new record high.

The enthusiasm rests on four pillars: lower corporate taxes, deregulation, higher tariffs on imports (especially China), and a pro-cryptocurrency stance including a strategic Bitcoin reserve. Tax cuts lift corporate profits. Deregulation helps banks and energy. Friendlier crypto policy is music to the digital-asset industry. But one corner is not cheering: the bond market. The 10-year yield has climbed from 4.29% before the election to 4.43% by last Friday. Priya Misra of JPMorgan captured it on Bloomberg: “Trump’s plan for tariffs and taxes should result in higher inflation and higher deficits and that should mean higher long-end rates.”¹

Two days after the election, the Fed cut rates by another quarter-point, to 4.50–4.75%.² Powell was asked whether Fed policy would change in response to the election. His answer: “In the near term, the election will have no effects on our policy decisions.” Asked whether he would resign if Trump asked him to: “No.” Asked whether a president could lawfully remove him: “Not permitted under the law.”³ The head of the central bank is publicly carving out a sphere of independence before the new administration takes office.

Consequences are not confined to America. The Mexican peso has been sold heavily on tariff fears. The yuan has weakened. European stocks underperformed — the Stoxx 600 fell slightly as investors digested implications for European defence and trade. Oil has fallen on expectations of more U.S. drilling. Regional bank shares, depressed for most of 2024 following last year’s SVB scare, have rallied more than 10% on hopes of lighter regulation.

Three thoughts for ordinary investors. Political events move markets sharply short-term and much less than people expect long-term — the S&P 500 rallied 60% in Trump’s first term but fell 34% in six weeks in March 2020. The biggest risk is inflation: if tariffs and a shrinking labour force push prices higher, the Fed will be forced to keep rates elevated, which is bad for shares and very bad for bonds. And American exceptionalism is, for now, back — foreign investors are piling in. Whether that trade works through 2025 is the biggest question of the coming year.