Transcript: U.S. election special: What’s ahead for global markets
As transition teams get to work in Washington, D.C., Jack Manley of J.P. Morgan Asset Management offers a macro view of America’s new direction
- Featuring: Jack Manley
- November 7, 2024 November 7, 2024
- 16:35
iStockphoto/Douglas-Rissing
Jack Manley
Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking about implications of a Trump presidency with Jack Manley, global market strategist with J.P. Morgan Asset Management. We talked about tariffs, taxes, inflation and we started by asking how the markets responded to the election.
Jack Manley (JM): The stock market has responded to the election exuberantly. The bond market has responded in a much more muted fashion. And I would say that the bond market’s response to the election is probably more reasonable than the stock market’s. What we’re looking at right now is a stock market that is extremely excited about the prospects of deregulation and tax cuts. But we don’t have a stock market that is taking into consideration some of the other things that may be coming down the pipeline that could end up being real structural drags. There’s a high likelihood of tariffs being imposed on most, if not all, of the United States’ trading partners. That could end up being inflationary. And inflation could translate into a change in the interest rate outlook. And higher interest rates may put downward pressure on multiples. We know that there may be tax cuts coming down the line, but that will likely result in a blown-out deficit. And increased debt loads will translate into higher interest rates, and that will put downward pressure on the multiples. We’re probably going to see a little bit of volatility, a little bit of chop in the stock market over the next month or so, as investors come to terms with some of these items that were not at the forefront in the rally that we saw after the election.
How concerned should trading partners be about tariffs?
JM: One of the things that tariffs are trying to accomplish is to bolster American domestic industrial production. But the other thing that tariffs are trying to accomplish is to right size significant trade deficits. China has the biggest trade deficit. Mexico, I believe, is the second biggest. And Vietnam is the third biggest. Canada is further down that list, but a very large portion of Canadian exports to the United States are in the form of energy. So, I think the impact on Canada might be somewhat limited. But I would think at least for right now, tariffs are going to be used as a negotiation tactic, a way to bring major players — in particular, China and Mexico — to the table to have broader geopolitical conversations.
On Trump’s fondness for deregulation
JM: Deregulation in general has long been a Republican banner issue. And I would say if you look at the equity market in the aftermath of the election, some of the biggest winners were financials and energy companies, clearly, in anticipation of potential deregulation in these two areas. I would say that that is likely going to be the case for both of these sectors. We are going to see some meaningful deregulation — reduced capital requirements, changes to how fiduciaries are appointed or considered, a lot of environmental regulation rolled back, which would make financials and energy companies a bit more attractive.
What’s a reasonable portfolio response to the Trump election?
JM: You should not be investing based off of your political beliefs or even based off of potential policy changes. You don’t want to let your view on politics influence how you think about portfolio construction. That said, over the short term, there probably are some things that we can take into consideration, right? One of those things is the volatility that we expect to see along the interest-rate curve. As markets continue to grapple with what an extension of the tax cuts and higher tariffs and things like this mean for debts and deficits and inflation, and how that translates into longer-term interest-rate policy, you probably want to shorten up a little bit on duration in your fixed income portfolio. We also saw the U.S. dollar surge in the aftermath of this election. A very high dollar is not going to be particularly good news for American investors looking to purchase foreign assets because of the currency transition. However, a very strong dollar may make foreign exports much more appealing to American consumers. And, so, I think there are a lot of moving parts here. The most obvious impact is you probably want to shorten up on duration a little bit. But everything else is kind of keep your nose down to the grindstone and think about things longer term.
And finally, what’s the take away on this week’s federal election?
JM: In terms of how to think about all this holistically, we are likely going to see an extension of the individual tax cuts from the Tax Cuts and Jobs Act, alongside a decrease in corporate tax rates, a decrease in regulation for certain sensitive industries, particularly financials and energy, baseline tariffs — or at least the threat of baseline tariffs — on a number of America’s largest trading partners. We may also see a decrease in U.S. funding for NATO. We may see a change in immigration policy. I mean, a lot of things could be changing over the next four years. But we have to remember that over the long run, the U.S. economy grows, the U.S. equity market grows. And I think it is an important reminder to investors that the S&P500 under the Obama administration returned about 16% per year. It returned about 16% per year under the Trump administration. And it’s returned about 14 or 15% per year thus far under the Biden administration, all while the economy has grown between 2% and 2.5% annualized. These are good numbers, regardless of the composition of government. So, while it is important to take all these things into consideration, history is a very good guide that if you are a long-term investor, a lot of this stuff is just going to become noise.
Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Jack Manley of J.P. Morgan Asset Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.
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