The unexpected re-election of Donald Trump as President of the United States delivered an immediate shake-up on Wall Street Wednesday, creating clear winners and losers across sectors.
Small-cap stocks surged while renewable energy and long-term bonds took a significant hit, reflecting investor expectations of a shift in economic and regulatory policies.
Winners:
- US small caps
Trump’s win sparked a rally among US small caps, with investors anticipating pro-growth, inflation-friendly policies. Oliver Blackbourn, multi-asset investor at Janus Henderson, and Renco van Schie, CIO of Valuedge, highlighted the S&P Midcap 400 and Russell 2000 indices as clear beneficiaries. Futures for these indices jumped over 4 percent and 6 percent, respectively—outperforming their large-cap counterparts on the S&P 500.
“With Trump’s victory, we’re likely to see reflation with higher growth and inflation, which is especially favourable for small-cap value stocks,” Van Schie commented. «Banks are expected to lend more to SMEs under Trump.»
- US equities
Large-cap stocks were buoyed by Trump’s win as well, with experts forecasting benefits from lower taxes and deregulation. Allianz Global Advisors suggested that a «laissez-faire» Trump administration could lead to a surge in mergers and acquisitions, a boon for smaller tech stocks. “If the economy manages a soft landing, we could see broader gains in the US market,” Allianz stated.
Auréus, in a LinkedIn post, noted that lower taxes and reduced regulation would drive US equities further, provided Republicans maintain congressional control. «Today’s Senate victory is a step in that direction,» Auréus stated.
- The dollar
The dollar surged, with the euro-dollar exchange rate hitting 1.07, marking a 2 percent drop for the euro. Van Schie remarked, “The extent of the dollar’s rise was surprising. It’s climbing against almost all major currencies, particularly the euro, Mexican peso, and Chinese renminbi.” Both he and Blackbourn attribute the dollar strength to Trump’s protectionist stance, which could lead to more import tariffs.
- Bitcoin
Bitcoin surged past 75,000 dollars, reaching an all-time high amid Trump’s re-election, though analysts at DWS noted the increase was less dramatic than anticipated.
- Private equity
Trump’s anti-regulation stance has favoured private equity. According to Auréus, “Trump’s policies are far less restrictive towards monopolies and oligopolies, outside of tech, which will likely boost mergers and acquisitions, benefiting both the financial sector and private equity.”
Losers
- Sustainable equities
Trump’s victory signals a rollback of green investment incentives, a key feature of Biden’s policies. Oil prices dropped immediately, worsening the business case for renewables, and leading alternative energy companies like Vestas and Orsted to plummet on European exchanges. “Green energy is the biggest casualty,” said Van Schie.
- US long-term government bonds
US 30-year government bonds faced over 2 percent losses amid fears of rising deficits under a Trump administration. Ralph Wessels, head of investment strategy at ABN Amro MeesPierson, warned, “It’s not unthinkable that the market could turn on the US government if spending spirals out of control, as we saw in the UK with Truss’s ‘historic tax cuts.’” Allianz Global Advisors voiced a cautious stance on US bonds, pointing to expected volatility as the market adjusts to the new political landscape.
- Chinese equities
The Hang Seng index closed down over 2 percent, weighed down by fears of higher tariffs. However, Auréus suggested that these fears may be overblown. “Elon Musk relies heavily on China for Tesla production, and Walmart sources 80 percent of its products from China. Trump could use tariffs as a bargaining tool with China.”
- European exporters
European exporters, particularly German carmakers, opened lower in response to Trump’s victory, anticipating a hit from tariffs. Economists forecast a 0.5 percent contraction in Germany’s GDP due to these tariffs. However, ABN Amro’s Wessels noted that quick clarity on the election helped Europe’s major stock markets finish the day in the green. “Investors despise uncertainty,” he said.
While Trump’s trade policies could hurt Europe, analysts see potential for a deal. “If Europe and the US strike a deal, parts of the European economy could remain unaffected—or even benefit,” said Van Schie.
- Emerging markets
Emerging markets also took a hit, with currencies losing ground as Trump’s win pushed the dollar higher. Mexico’s peso, in particular, fell by 3 percent. Higher US inflation and a stronger dollar are likely to weigh on emerging economies, but Brazil could benefit if China redirects soybean imports from the US to Brazil.