Market Update 11.6.24
Our Investment PerspectiveThe broad stock indices are reacting positively to the news of a Trump win and potential Republican sweep. A few thoughts as we consider what lies ahead:
Tariffs are coming. These will raise the costs of purchases for Americans, and most dramatically impact people who spend a higher percentage of their income (middle- and lower-income households). Think of this as a steroid injection for inflation. Interest rates will go higher, which is why the dollar is rising this morning. A strong dollar is a perceived sign of strength but is a negative for US companies trying to sell their goods abroad (even before our trade partners respond with their own tariffs).
Trump has said he will reduce funding for the Inflation Reduction Act (IRA), which spurred growth in clean energy investments. As a result, solar and other clean energy companies are off sharply this morning, as are several utilities. The increased need for electricity to power Artificial Intelligence (AI) operations will be more challenging if these sources of energy are not broadly developed.
Mortgage rates are most likely going higher as interest rates rise. This may not be immediate. There is already talk that the Federal Reserve may slow the pace of rate cuts because they now expect inflation to move higher.
Mike Johnson, Speaker of the House, indicated that the CHIPs Act may be repealed under Republican leadership. This legislation funds incentives for domestic development of semiconductor chips and was a bipartisan effort to address compromised supply chains. Such a move would be controversial even within the Republican party, making it less likely, but we cannot rule it out.
Banks are rallying this morning. A Republican sweep leads to reduced regulation, a boon for the financial industry. Managed healthcare companies are also up on the expectation of lower regulation, but that industry is in the crosshairs of both parties and may not see the benefits they expect.
Cryptocurrencies’ markets are elated this morning as Trump has been a vocal supporter.
It will be critical to see who Trump chooses for key leadership positions over the next couple months. This will provide more clarity on anticipated policies; we will be watching closely.