Trump v. US Economy

More than 4bn people, about half of the world’s population, are heading to the polls in what promises to be the biggest election year in human history. Voters in 68 countries will be exercising their democratic rights, but investors’ focus is firmly on the US Presidential election. Here, Donald Trump is currently leading polls by 1 to 8 percentage points¹, albeit the same polls have been underestimating Democrats in recent elections. Indeed, the pending Supreme Court decision on Trump’s inclusion on Colorado’s state ballot² could not only upend the election cycle but also, to many, seems like a vote on the US economy. But is it?
 

Talk the Talk, Walk the Walk

From raising trade tariffs to dismantling President Biden’s Inflation Reduction Act (IRA) and getting tough on immigration, Trump’s election promises cover a range of initiatives that could reshape the direction of the American economy. Whether he will – or even is able to – implement them is a separate question. Radical partisanship and political disfunction run high in Washington, and the government’s fiscal situation leaves precious little room for manoeuvring.

History shows that the American economy is a beast hard to tame even by the most powerful leader in the world. It’s a challenging endeavour to significantly change its direction in the relatively short tenure of the American Presidency, and many long-term effects of policy decisions will not emerge until well after the president’s departure. This holds both ways. The economy under Barack Obama benefitted considerably from decisions made in the wake of the Great Financial Crisis under George W. Bush. In the same vein, it is hard for presidents to break much within an economy that is not already broken, even for hardliners like Trump.

It's (not) the Economy, Stupid

While investors should not disregard the impact of elections on investment performance, they should not overestimate them either. Presidents only have so much sway over the economy they preside over. What’s more, the economy is not synonymous with markets, which tend to have a longer, more forward-looking view. In the long term, factors such as demographic change and the move towards Net Zero are likely to have a bigger impact on market returns. Even in the short- to medium term, the path of inflation and de-globalisation are set to trump Trump’s policy decisions if he makes it into office. His last stint is a case in point: despite wide-spread concern about the market impact of his protectionist agenda, the S&P 500 index of US equities rallied 83%³ under his tenure from 2017 to 2021.

Many expect the Supreme Court’s pending ruling on Trump’s ballot inclusion to result in a binary outcome for much more than “just” the presidency. However, investors should resist the urge to position for outsized market reactions in either direction and instead reserve conviction on true long-term developments. At SGKH, that includes the base case of a soft landing for the global economy, and attractive opportunities in themes such as renewable energy or artificial intelligence.

1 https://projects.fivethirtyeight.com/polls/president-general/2024/national/

2 https://www.nytimes.com/2024/01/05/us/trump-supreme-court-colorado-ballot.html

3 Source: Bloomberg

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