2024_11_18_CountdownPlusTwo_M

US Election aftermath: Why market enthusiasm for Trump has stumbled.

US Election 2024 6 minutes to read
Picture of John Hardy
John J. Hardy

Chief Macro Strategist

Summary:  The initial celebration of Trump 2.0 suddenly reversed course late last week. We look at why and ask two key questions about the incoming Trump administration.


The initial, almost euphoric reaction in US equity markets to Trump’s victory in the US election stumbled badly last week. The widely followed Nasdaq 100 index closed Friday down almost 4% from the post-election highs and less than 1% higher than where it closed on Election Day, before the election result was known. 

Yes, some sectors that responded especially well to the strong Trump victory and Republicans securing control of both houses of Congress are still much higher than before the election, but the ugly action last week in the market suggests a sharp change of tone.

This week, I look at the possible reasons for the sudden caution after the initial positive reaction to the election outcome. I also ask two key questions that investors will want answered as we seek to understand how the incoming Trump administration will shape global markets in the months ahead.

Chart of the week: Palantir: A “tech bro” stock that has outperformed Tesla post-election.

2024_11_15_Palantir

Why did the market suddenly turn sour on Trump last week?

The market suddenly got far more selective in its enthusiasm for the coming Trump administration late last week, with Friday seeing an ugly sell-off that erased a large portion of the post-election rally. Some sectors like banks and airlines that most agree would benefit from deregulation under the new Trump administration were almost completely unscathed. But the broader market, especially big tech and many of the Mag 7 stocks, but also small caps, saw an ugly reversal.

What was behind the move? Some argue that it might have been as specific as Elon Musk speaking out against the candidate formerly most favoured to become the next Secretary of the Treasury, Scott Bessent. Trump’s choice for Secretary of Treasury is especially critical due to the terrible state of US government finances. Bessent is seen as a strong choice by the market, as he is not an academic but an experienced hedge fund billionaire. But Musk and Robert F. Kennedy Jr., who Trump appointed as the next Secretary of Health and Human Services, argued late last week that another top candidate, Howard Lutnick, is a better choice. Lutnick is the CEO of financial services firm Cantor Fitzgerald and has been a strong Trump supporter and has spoken very favourably on Trump’s plans to impose tariffs on US trade partners. Trump could also go with another candidate than these two, but this is one of the most important decisions the president-elect will make.

But there other possible sources driving market unease as we look ahead at the incoming Trump administration. To name a few:

Controversial choices for his cabinet and other positions. Many of Trump’s choices for key government and cabinet positions have raised little controversy, but others were extremely controversial. Specifically last week, Trump announced choices for Attorney General, Secretary of Defense and Director of National Intelligence that seemed almost designed to outrage the Washington establishment. In particular, his nominee for Attorney General, Matt Gaetz, was seen as completely unserious and perhaps a way to reward a loyal ally who was probably about to get kicked out of the House of Representatives on ethics violations. Can a president enjoying controversy and provocation guide the country effectively? Such moves risk the loyalty even within the ranks of his own party, which brings us to the next point.

Very narrow Republican control of the House. The Republicans will control both houses of Congress in at least the first two years of Trump’s presidency until the 2026 mid-term elections. Control of Congress is key for a US president to have any hope of passing major new tax-, spending and other legislation. But Republicans will have an extremely thin majority of just a few votes in the 435-member House (the full outcome is not yet decided due to a few very close results). This means that extreme party discipline will be required at all times, where even a few Republican members failing to fall in line could derail the key parts of his agenda that saw an enthusiastic response from the market when the election result was clear. Trump appointing a couple of House members to key posts makes the majority even smaller until special elections are held next year to replace them.

Will Trump’s agenda prove as positive for the economy as hoped? While there are clear growth-positive elements to Trump’s agenda of cutting taxes and deregulating key industries, the market is right to be concerned about other parts of his agenda. Among these are the general risk that the world will rebel against financing ever greater US budget deficits, sending interest rates soaring. Large tariffs and mass deportations of illegal immigrants are widely flagged concerns as well, likely to disrupt many industries and raise prices, even if some in the economy would benefit. And then there is the possible role of the “tech bros”, something we delve into below.

Trump 2.0: Two key questions as markets second-guess the initial reaction

Will the “tech bros” get their way and slash government spending?
This election cycle saw many of the most powerful billionaires moving to either avoid sounding critical of Trump or to even go all in on his side. None has been louder in support of Trump than Tesla’s Elon Musk, whose massive donations to Trump’s campaign saw him appointed co-head of a new government Department of Government Efficiency. Tesla’s stock has also rocketed higher since Trump’s election win, rising over 40% at one point and making Musk some USD 80 billion wealthier in the process. A Bloomberg story on Monday suggested Trump’s team is looking to create new framework on a federal level (rather than a state-by-state level) for self-driving vehicles like those Tesla aims to produce. Clearly, money buys influence as it always has – but how deeply will the “tech bros” like Musk influence the Trump administration? Musk has said that USD 2 trillion could be trimmed from the US government expenditures (the annual budget will be around USD 7 trillion next year). Most believe that cuts on this scale are impossible, but government spending is an important driver of economic activity, and any significant cuts to spending, if they do see the light of day, would impact growth negatively in the near term.

Does Trump misunderstand his popularity and overreach from day one?
This is the first time in the last three elections that president-elect Trump has received a majority of the popular vote and there is no doubt that the election has given him a strong mandate relative to 2016. But could Trump take things too far as he takes the reins of power for the second time? The mistake Trump might make is to believe that the election outcome is an unconditional endorsement of his personality, way of leading and positions on all fronts. What may have handed him the victory at the margin were a couple of percent of the vote that wanted to vote for Kennedy but voted Trump when Kennedy endorsed him. And even more so, Trump may have won chiefly on the association of Biden and Harris with the high inflation of 2021 and 2022. It’s worth pointing out that the Republicans were also in favour of the huge giveaways that stoked that inflation. In late 2020, Trump asked for a USD 2,000 stimulus check rather than the USD 600 that was eventually approved. Large tariffs and the huge deportations of illegal immigrants could risk stoking a powerful new inflationary wave for goods and labor prices and make the already unpopular Trump even less popular in a hurry. The party in power gets the credit for what happens next, for better or worse.

This is the final article in the weekly US election series. Look for ongoing coverage of how US policy, central bank policy and the economy in general will continue to shape markets from here on the Saxo platform.

About the author: John is Saxo’s Chief Macro Strategist, with over twenty-five years’ experience in the financial markets, chiefly as Saxo’s former Head of FX Strategy. He is also an American, having grown up in Houston, TX and has a long-standing passion for following the course of US elections and their place in history since being allowed to stay up late as a young kid to watch the 1980 election results roll in and Ronald Reagan winning the presidency over Jimmy Carter.

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.