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Economy & Markets

U.S. election recap: What could GOP policies mean for investors?

Donald Trump has been elected President again. TV networks called the race at around 5:30 a.m. Eastern Standard Time, and the AP called the race shortly after. A win in Wisconsin put him over the 270 electoral college vote threshold.

The market is responding how we would have expected in the event of a Republican sweep—U.S. large-cap stocks, small-cap stock, and bond yields are all sharply higher.

S&P 500 futures are up another +2.3% on top of yesterday’s +1.1% gain. Yesterday, all 11 sectors were higher, and breadth was the best since August (87% of constituents finished higher).

Small-cap stock futures are up +6.5% on top of yesterday’s +1.9% gain, and are at one-year highs. The VIX Index (a measure of implied volatility) is collapsing ~5 points because the election outcome became clear so quickly. On the other hand, Hong Kong’s Hang Seng Index is down around -2.5% from yesterday’s highs. 

This morning’s market performance

Asset class returns, %

Source: Bloomberg Finance L.P. Data as of 7 a.m. EST, November 6, 2024.
Bond markets are reacting strongly to the move. Ten-year yields are up 16 basis points (bps) to 4.43%. The yield curve is steepening. Two-year yields are “only” higher by 8 bps. 

Yields have pushed higher post election results

2 and 10-year yields year-to-date

Source: Bloomberg Finance L.P. Data as of November 6, 2024.

In commodities and currencies, gold is down slightly this morning (-0.8%) $2,744/ounce, as is oil ( -1.25% to $74.5/barrel). Bitcoin is trading at all-time highs and has gained 10% over the last two days.

The key takeaway from the price action is that markets are more focused on the pro-growth policies rather than the risks of tariffs or increasing deficits. Bond yields are higher, but so is the dollar, and risk markets are performing exceptionally well. Sectors that are exposed to regulatory risk, such as small-cap banks, are also performing well. If deficit concerns were the focus, the dollar and stocks would be weakening as bond yields rise.

Your election recap

President Trump is on track to win every swing state. Republicans have won control of the Senate, and while the House of Representatives is still officially a toss-up, markets seem to think Republicans will win a slight majority. There are still 60 seats outstanding in the House, and it could take several days to a week to declare winners in all of the outstanding races.

2024 U.S. Elections Dashboard – Presidential race

Map of U.S. Electoral College vote

Source: BallotPedia and Politico. Data as of 7 a.m., November 6, 2024.

Even if Republicans do end up winning the House, it seems as if their margins will still be slim. This means that negotiation and compromise will still be necessary for major policy proposals. Here is an updated look at the key issues.

On taxes: While there is still a long way to go in Tax Cuts and Jobs Act extension negotiations, it seems as if the “worst-case” market outcomes may have been avoided (e.g., higher taxes on capital gains, QDI treatment and tax exemption of municipal bond income). That said, a full extension of the TCJA may not be palatable to members of Congress who are worried about the deficit. The provisions of the TCJA won’t expire until the end of 2025, so we wouldn’t expect decisions to be made until the back half of next year. 

If fully extended, personal tax rates will stay at current levels outlined in the chart below:

Income taxes pre and post Tax Cuts & Jobs Act

Average individual income tax rate, %

Source: Internal Revenue Service and J.P. Morgan. Data as of December 31, 2019. Pre-TCJA is the 2017 rate. Post-TCJA is the 2019 rate. The Tax, Cuts and Jobs Act took effect January 1, 2018.

Regardless of what may be enacted next year, it is a good time to reflect on giving wealth to future generations, whether outright or in trust if it aligns with your financial situation and goals. That’s principally because all future appreciation on those assets would not be subject to future U.S. estate tax on your (or your spouse’s) death.

On trade: President Trump has proposed an increase on tariffs to 60% on all Chinese goods and up to 10% on all other imports. While higher tariffs on China seem likely, the broad tariffs on all trading partners face much higher legal hurdles. The dollar is strengthening this morning as markets perceive that tariffs will extend “U.S. exceptionalism.”

On immigration: The President does garner relatively more power when it comes to immigration policy. President Trump has proposed much stricter immigration measures and an effort to deport asylum seekers. We should expect that immigration will slow considerably, though it is notable that during Trump’s previous presidency, he called for the deportation of 11 million immigrants, but there were only about 300,000 deportations per year from 2017 to 2020.

On the deficit: We said that regardless of the candidate elected, deficits will likely increase. As Michael Cembalest pointed out in his paper, Mind the Gap, President Trump’s policies as proposed would increase the deficit by ~$4 trillion. As previously stated, tight margins in the House and Senate will provide a buffer against this type of deficit expansion. That said, the move in bond yields suggests looser fiscal policy, better growth prospects, a higher landing place for the Federal Reserve, as well as higher inflation. 

What we think:

  • More positive:
    • U.S. equities versus rest of the world. We would add cyclicality through tech, industrials and financials
    • Gold and real assets (infrastructure, real estate, etc.)
    • U.S. dollar
  • Neutral:
    • Despite the backup in rates, we would stay neutral duration
  • Less positive:
    • U.S. healthcare, staples and energy (given a less positive view on oil prices)

Election outcomes will likely affect specific asset classes

Street expectations for the impact

This chart shows the implications of a Harris win with Democratic Congress and Divided Congress, and a Trump win with Divided Congress and Republican Congress.
Source: J.P. Morgan Private Bank. Data as of November 6, 2024.
What we think: Now that the President-elect is confirmed, markets can do their job as a forward-looking machine. Volatility tends to fall relatively quickly after the new composition of government is confirmed, and on average, equities are higher 12 months after the election.

Volatility tends to pick up in October, but falls after the election

Monthly Average VIX Index levels, by election year status (1990-2023)

This bar chart shows monthly average VIX Index levels per month from 1990 to 2023, differentiating between election and non-election years.
Source: Bloomberg Finance L.P. Data as of December 31, 2023. *Analysis from 1990-2023.
Said differently, don’t let an election derail your plans—historically, election outcomes don’t drive market returns over the long run. After all, they happen every four years, and since 1950, there have been 18 presidential elections and 10 transitions in the White House between Democrats and Republicans. Over those 74 years, U.S. GDP growth has averaged a 3.2% annual pace, and the S&P 500 has compounded at 9.4% per year. 

Election outcomes do not drive market outcomes over the long-run

U.S. Nominal Gross Domestic Product (GDP), USD trillions, log scale

This chart shows U.S. nominal gross domestic product from 12/31/1930 to 12/31/2023, showing Democratic and Republican indicators as well as Presidents who have been elected via general election.
Source: BEA, Haver Analytics, White House History, J.P. Morgan. Data as of Q4 2023. Democratic and Republican indicator is the party of the president in the White House at that time. Presidents shown include only those who have been elected via general election.

All market and economic data as of November 2024 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

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With a Republican victory confirmed, we discuss what might be coming over the next term.

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