Will Trump win? Some suggest that in both Trump’s assassination attempt and the recent debate between Biden and Trump, Trump’s win chances have increased significantly. According to a recent article by Forbes, Trump’s lead has reached a record high in two prominent surveys, with more voters expressing concerns about Biden’s age. As we approach the upcoming elections with the assumption that Trump will secure a second presidential term, a key question arises: which sectors in the capital markets are likely to be affected in case of a Trump win in 2024?
Key Takeaways
- Recent surveys indicate Trump’s lead has reached a record high, with voters increasingly concerned about Biden’s age.
- If Trump secures a second term, the energy sector is expected to benefit from policies favoring fossil fuel production and deregulation despite mixed performance during his first term.
- Trump may revive the trade war with China, potentially imposing higher tariffs, which could lead to inflation concerns but may also bolster domestic production.
- In his final term, Trump might prioritize long-term legacy over short-term gains, implementing bold policies that could create market volatility but stimulate sectors like energy and manufacturing.
Market Impact of Trump’s Presidency 2016-2020
To predict how the markets might behave due to Trump’s potential election, we can examine the market performance during his 2016-2020 term. During that time, the S&P 500 experienced significant growth, increasing by 42%.
Contributing to Trump’s presidency’s influence over the market should be taken with a grain of salt, as markets have many factors affecting it. Specifically, markets were highly impacted by the black swan event of COVID-19 in 2020.
Breaking it down to main sectors, the energy sector was heavily influenced by Trump’s promise of deregulation, particularly by rolling back Obama’s Clean Power Plan, which benefited fossil fuel companies. However, the energy sector had mixed performance, as the positive effects were offset by the COVID-19 pandemic and falling oil prices.
Tax cuts, specifically the corporate tax rate reduction to 21%, had a broad market impact. This policy partly contributed to the gains in the technology sector, which led the market, driven by increased demand for digital services and remote work during the COVID-19 pandemic.
Source unsplash.com
A Trump Win: What Are Trump’s Goals if He Wins?
I believe this is the million-dollar question. Perhaps only Trump and his closest staff truly know his aspirations. This term holds greater significance than the first, as it is Trump’s final presidential term. So, what exactly does Trump want?
A logical assumption can be that he might prioritize long-term legacy over short-term gains. This could lead to more aggressive and bold policies to secure his impact, regardless of immediate political outcome (not that this was an issue in the past).
Trump’s Potential Boost for the Fossil Fuel Industry
Trump could potentially gain the most from this term by focusing on energy policies because energy independence and deregulation correlate with his base opinions and can stimulate economic growth. Additionally, strong energy policies can create jobs and boost domestic industries, enhancing his political leverage both domestically and internationally.
Trump is well known for his skepticism about global warming (see AllinAllSpace article on global warming skeptics’ arguments) and can continue his pro-fossil policy from his first term and leverage it by encouraging oil fracking, rolling back environmental regulations, providing tax incentives, and increasing access to federal lands for drilling. With that said, from a market-wise perspective, it can lead to short-term gains for the fossil fuel sector, but long-term effects are uncertain as public opinion plays a crucial role.
Source unsplash.com
What’s more, Trump’s reaction to the turmoil in the Middle East, particularly the ongoing conflict between Israel and Palestine, could be a major catalyst for a further increase in energy supply shortage.
Trade Relations with China and Tariff Policies
Another critical aspect is Trump’s approach to trade, especially with China. There is speculation that Trump might revive the trade war with China, imposing a 10% tariff on worldwide imports and increasing tariffs up to 60% on goods, specifically Chinese imports. This is in addition to existing taxes from his previous term that Biden did not cancel.
The US acknowledges the threat from China’s manufacturing growth, especially in cars, arms, and chips. With a low-cost workforce and loose regulations, China continues to be a fierce competitor. Critics argue that these methods might not work as intended. Despite tariffs, the trade deficit keeps growing. Cheaper imports from other countries, like Vietnam, offset much of the tariff’s effects.
A Trump Win Has a Deflationary Effect
Market reactions to Trump’s increased tariffs often center around fears of inflation. However, the import share is only 15.59% of the total GDP (as of 2022), and the US economy operates relatively independently. Conversely, Trump’s policies could have a deflationary effect by boosting fossil fuel production, potentially lowering energy prices in the US.
In the chart below, it is evident that the share of imports relative to the total GDP ranged between 10% and 18%, highlighting the USA economy’s resilience and relative immunity to external pressures.
Source statista.com
Summary
As the 2024 elections approach, the potential implications of a second term for Donald Trump are gaining attention. Following a recent debate between Biden and Trump, Trump’s chances of winning have increased significantly, with some surveys showing a record-high lead for a Trump win, largely driven by concerns over Biden’s age.
From our analysis, the energy sector is likely to see significant changes under Trump, with policies favoring fossil fuel production and fracking while potentially reducing green market subsidies. This could lead to short-term gains for the fossil fuel industry, but long-term uncertainties remain due to shifting public opinion.
Moreover, Trump’s trade policies are also expected to be aggressive, particularly towards China, with potential increases in tariffs on imports. Critics argue that such measures may not be effective in reducing the trade deficit and could lead to inflation concerns, though the overall impact on the US economy might be mitigated by its relative independence.
Overall, as evident from Trump’s first term, the unpredictable nature of a second Trump term is likely to be no different than the first. Since Trump entered his last presidential term, Trump’s administration policy might be more aggressive, which could lead to more volatile financial markets.
