Trump’s Return: Market Dynamics and Global Economic Ripples
Despite facing numerous legal challenges, President-Elect Donald Trump has once again secured the trust of millions of Americans, positioning himself one of the most powerful presidents of all time. His victory, sweeping in both breadth and impact, has solidified Republican control of the Senate, with Trump achieving a decisive popular vote margin. This win sets the stage for a policy landscape shaped by his distinctive priorities—deregulation, tax cuts, and protectionist trade policies.
In this article, we assess what investors can expect as Trump’s policies unfold, examining the potential economic and market implications.
Trade Policy and Tariffs: Renewed Tensions with China and Key Trading Partners
Trump’s administration has signalled its intent to heighten tariffs on Chinese imports and possibly extend these to other countries with trade surpluses, including Mexico and Germany. A recent report from Alpine Macro indicates that Trump is contemplating a substantial increase, potentially raising tariffs on Chinese goods to 60% from the current 25%. Such measures are likely to disrupt global supply chains, forcing multinational companies to rethink sourcing strategies.
Historically, tariffs have been economically deflationary, curbing disposable income and dampening consumer spending in affected areas. Global investors should monitor sectors most vulnerable to trade barriers, such as technology hardware and automotive stocks, which previously experienced tariff-related fluctuations during Trump’s first term.
For emerging Asian markets like Vietnam, Malaysia, and Thailand, however, there may be opportunities; companies may look to these regions for diversification as they pivot away from China. Likewise, Eastern European economies could benefit from U.S. demand for manufactured goods as global supply chains adjust to new geopolitical realities.
From a South African perspective, international relations will need to intensify efforts to maintain its standing in U.S. trade and economic policies, given the heightened possibility of sudden tariffs.
The U.S. Dollar: Strengthening on Fiscal Expansion and Tariffs
Trump’s tax cuts and tariff policies are anticipated to strengthen the U.S. dollar. Past precedent suggests that tax reductions combined with stringent fiscal measures can boost U.S. output, raising interest rates and, consequently, the dollar’s value. However, during Trump’s first term, the dollar weakened against the major first-world currencies, but strengthened against the general emerging market currencies:
For South Africa, a stronger dollar could lead to raising import costs but potentially enhancing export competitiveness. Industries such as mining, export-driven manufacturing, and tourism could benefit as a weaker rand makes South African exports more attractive and draws foreign tourists.
Equity Markets: Potential for Growth and Strategic Sector Rotation
The S&P 500 may stand to gain from Trump’s pro-business stance, with Goldman Sachs Research forecasting a 9% increase in the index over the next year. In 2025, earnings-per-share for the index are expected to rise by 11%, with a further 7% increase in 2026. Sectors aligned with deregulation and tax cuts could see significant appreciation.
With an emphasis on U.S.-based assets, foreign capital flows into South Africa could diminish, raising the cost of capital locally and highlighting the importance of domestic investment for economic growth. Specific South African sectors, such as mining and export-focused manufacturers (e.g., Sasol, Sappi, Nampak, and Mondi), stand to benefit from enhanced export competitiveness. Additionally, the tourism industry, including companies like Sun International and City Lodge Hotels, could experience a boost from increased foreign visitors attracted by favourable currency conditions.
Sectoral Winners and Losers
Trump’s victory has sparked interest in sectors like financials, small-cap companies, energy, and defence. His policies favouring deregulation could reduce compliance costs for financial institutions, enhancing their lending capacities. The energy sector, particularly fossil fuel industries, stands to benefit from relaxed environmental regulations, while defence and aerospace could see a surge in demand with anticipated increases in defence spending.
The table below summarizes the cumulative returns of the mentioned favourable sectors as of the 1st of November 2024.
Conversely, sectors tied to environmental initiatives, such as renewable energy, may face hurdles. Trump’s scepticism towards climate policies could slow growth in these industries by limiting incentives and government funding for clean energy projects.
Conclusion
A second Trump term will likely yield positive and adverse outcomes for the equity market. Reduced corporate taxes and deregulation are expected to stimulate stock prices, while aggressive tariffs could hinder certain industries.
Investors should prepare for a robust dollar, a favourable equity environment, and a sector rotation towards Trump-aligned industries like financials, energy, and defence. However, trade tensions and potential increases in Treasury yields present tangible risks, emphasising the importance of a diversified investment approach. As Trump’s policy landscape unfolds, close attention to sector performance and international market shifts will be vital in navigating the evolving economic terrain.
