You're listening to Strictly Business Podcast with Lindsay Williams.
Donald J.
Trump is to be the 47th President of the United States of America, a remarkable
achievement.
In fact, he's only the second president in US history to serve two terms
non-consecutively.
The last one was in the 1890s. And also, don't forget that he's a convicted felon,
and that's the first time that's ever happened as well.
But never mind politics.
What about markets?
With me is Philip Saunders.
Director at the Investment Institute at 91 in London.
We have to say something about politics, Philip, just to put everything into
context.
It is a remarkable turnaround achieved by Donald J.
Trump, isn't it?
Absolutely.
I mean, the guy has shown extraordinary resilience.
And, you know, the Democrats have done everything to try and prevent him from
running.
You know, this is a wonderful word, lawfare.
whereby you basically use the legal system to pursue your particular sort of
political ends.
And, you know, and he sort of carried on and on and on.
So I think it's a remarkable achievement politically.
And we will find out whether it's a good or a bad thing.
Yes, indeed.
The next 90 days are going to be a sort of an interesting time.
But when he is sworn in on January the 6th, I think it is.
And then we'll see if the promises he's made are going to come to fruition.
But as I said, it's not to do with politics.
This podcast is to do with the markets.
And as the results came in, the S&P just kept on ticking up, the S&P 500.
So the equities markets loved it.
Can this continue?
In other words, can risk assets, particularly in the United States,
continue that momentum that they've already started?
Well, I think that, you know, bear in mind the fact, you know, we've had a pretty
spectacular year in terms of...
of performance or certainly over the last 12 months or so,
albeit narrowly led for quite a part of that.
And so, you know, we're in a cyclical bull market at any rate.
And we then saw quite a lot of de-risking prior to the election because of, you
know, the typical sort of uncertainty.
Shorter term investors tend to, you know, hedge positions and so forth.
And as soon as it became clear...
that the polls were wrong and the betting markets actually were right,
then you saw basically this sort of risk on move with the
S&P going up, with the dollar strengthening and some other international
equity markets sort of
doing the opposite.
So the context of course is actually You know,
concerns about a hard landing have reduced significantly in recent months.
The bond market basically has fallen in part because basically hedges have been
coming off.
You know, there's been less hedging of that sort of hard landing risk scenario.
But, you know, Trump in his first term proved to be actually, despite the
rhetoric,
a pretty conventional pro-business.
um pro deregulation uh president um and uh and and i think that that's the
market participants conclusion is that basically growth will be probably growth
and inflation will be higher under trump uh
but and that he's pro-business um and he's going to engage in a lot of deregulation
you know and so market
participants uh you know like the sound of that
yes they do but does the man and woman in the street like the sound of that because
I think what you're saying with the inflation story is that if he imposes all
these tariffs that he's promised to do, whether it be 25%
across the board or, you know, 200% on certain Chinese imports,
in the short term is very inflationary and people will suddenly say, wait a second,
inflation was X when you came to power and now it's X plus one and a half or
something.
And that means the bond market does suffer.
So there's all sorts of imponderables here, Philip, because he is.
He's a maverick, isn't he?
I think that's a polite way of putting it.
Yeah, he's definitely a maverick.
And, you know, but he's not a fool.
And he's also highly transactional.
And so, you know, who knows what the ultimate policy will be vis-a-vis track
tariffs, you know,
they might be very narrowly based.
And, you know, we'll have to see and that will certainly, you know, there'll
certainly be areas of uncertainty, you know,
but you're not going to go into a negotiation with a position of low
tariffs, are you?
I mean, it wouldn't make sense at all.
And that's the nature of Trump that we saw in the first term.
So the bark is generally worse than the bite.
But he's transactional.
And so...
He believes in doing bilateral trade deals, obviously particularly with the
Chinese.
And he believes in doing things that are good for business.
And if you do that, then it'll be good for employment and good for the economy.
Yes, well, hopefully that's true.
And hopefully he'll act on his promises.
I spoke about the S&P 500 in my introduction.
And to me, that was a...
an incredible knee-jerk reaction.
Maybe there were some shorts that had to be covered.
I don't know.
We need not get into the technicalities.
But what about the other asset classes?
Will you be sitting down with your team?
Have you already sat down with your team?
I don't know.
And discuss the implications of this and maybe repositioning because of what is to
come in January, i.e.
a new four years of Trump.
So we're having a sort of continuous conversation about positioning.
So, yeah.
We don't have to wait for meetings and so forth.
And, yeah, I mean, I think we've sort of come into this pretty well positioned.
And for the time being, we think that we're in, you know,
obviously this sort of continuing cyclical bull market for equities.
And we're also likely to, you know,
inflation is likely to be pretty well behaved for the time being, you know,
which provides the Fed with, you know,
headroom to continue to cut rates, which, of course, is...
positive for markets.
So, you know, we have to remember, actually, when the chips are down,
US presidential election results, you know, have less impact than people
generally believe,
because they're exposed to an enormous amount of media coverage.
So it's the underlying fundamentals that are really going to drive things and
certainly determine what the outcomes are
over a full presidential cycle.
And quite often, you know, the results are sort of seemingly perverse.
So under Trump in his first administration,
he had it in for big tech.
And actually, big tech were the best performing companies during his
presidency.
And if we take Biden, actually,
he introduced a lot of legislation to drive the energy transition in the States
and to fight climate change.
And, you know, what was the best performing sector, at least until August?
It was actually the oil companies, best performing sector, fossil fuels, i.e.
the enemy.
So we have to be really quite careful about not putting too much weight on, you
know,
speculation about presidential policy.
OK, so the short term is going to be volatile, I would imagine.
But once the dust has settled, Philip.
Are you quite happy and quite sanguine about the fact that Mr.
Trump will be in the White House and things will go on relatively smoothly
unless he makes a silly speech here and there?
Yeah, I mean, I think that, you know, as I said earlier on, you know, you've got to
sort of look through the rhetoric to some extent.
And now it's certainly true that the Republicans are going to control the
Senate and there's a pretty good chance they'll
end up controlling the House as well, the so-called red sweep.
But the margins of control will be pretty limited.
You know, it's pretty narrow.
And that means that the sort of constitutional structure, you know,
means that he won't simply be able to waive everything he might want through.
So the constitutional structure, you know, is still going to work to sort of mute
policy.
I, you know, mean that policy has to be negotiated with the two houses.
So that, I think, means that you're not necessarily going to get unadulterated
Trump policies.
And we don't know necessarily.
We've got some sort of clues, obviously, but we don't know what he's going to
prioritize and we'll have to sort of see.
But in the meantime, you know, it looks as if we're sort of moving into a broader
reflationary phase internationally.
It's going to be interesting to see the Chinese response.
And we suspect that the Chinese, you know, obviously they're due to have one of them.
important meetings coming up in the next few days.
And we think they're going to go relatively large in terms of stimulus.
And I think elsewhere in the world, you know, particularly Europe,
we're going to have to see more of a fiscal response in order to actually drive
growth.
And that, you know, means that we're probably moving into a period of
synchronized expansion.
And equity markets are going to like that.
Bond markets, not so much, but equity markets are going to like that, because
it's good for earnings.
and it's good for market breadth which has been lacking.
Thank you so much for your analysis.
Philip Saunders is a director at the Investment Institute at 91 in London.
The views and opinions expressed in these podcasts are those of Lindsay Williams and
various contributors and do not reflect the policy,
position or opinion of any other agency, organisation,
employer or company associated with StrictlyBusinessPodcast.com.
Assumptions made on the analyses are not reflective of the position of any other
entity.
other than the speaker or the author.
And since we are critically thinking human beings, these views are always subject to
change,
revision and rethinking at any time.
Please do not hold us to them in perpetuity.