November 2024

As President-elect Trump prepares for a second term in the White House, it is widely

believed that his administration will adopt a decidedly different approach than the prior

administration, particularly in key areas such as fiscal policy, trade and immigration.

There will clearly be world wide implications of a Trump presidency, including his

promise to end the war in Ukraine; his “powerful recommitment to US-Israel ties”

(https://nypost.com/2024/11/10/us-news/what-comes-first-during-trumps-first-100-days/); and his ability to add one or two more supreme court justices, however I will

focus on the direct implication for the stock market.

Tax cuts

It is expected that a Trump White House will likely extend 2017 tax cuts and enact a

further reduction to the current corporate tax rate On the trade front, the new Trump

administration will likely seek to impose a range of new tariffs on China as well as other

key trading partners. Nonetheless, the new President should be viewed as being

relatively more pro-business while championing a more favourable regulatory

environment going forward. Trump will also pursue stricter immigration policies including

increased spending on immigration enforcement.

Tariffs

In the short term, the Trump presidency may stimulate economic growth through tax

cuts and deficit spending, while tariffs would also provide a lift to protected domestic

industries. However, these measures will likely increase the U.S. national debt over

time, driven by successive annual fiscal shortfalls. Over the long term, investors should

expect that these measures could lead to lower economic growth – as the combination

of an increasing debt burden, a more constrained labour supply and trade tariffs would

produce incremental inflationary pressures as well as potentially higher interest rates.

Inflation

The U.S. Federal Reserve cut interest rates by a quarter of a percentage point last

Thursday, as policymakers took note of a job market that has "generally eased," while inflation continues to move toward the central bank's two per cent target.

However, in the long run, evidence clearly shows that the choice of president,

Republican or Democrat, has little impact on long-term equity outcomes. The lead-up to

the vote and the period immediately following election results often produce increased

market volatility; however, bottom-up fundamental drivers, including going-in valuation

levels and the ability to compound earnings over time, are superior determinants of

equity returns in the long run.

When Trump takes office in January, he will inherit a fundamentally strong economy with

GDP growth hovering around 3% for the past year, which is ahead of the long-term average and above the consensus estimate. Meanwhile, inflation is close to the Federal Reserve’s target range, while the unemployment rate is at a healthy 4.1%. (https://capitalmarkets.bmo.com/en/news-insights/research-strategy/markets-plus/what-does-donald-trumps-win-mean-for-the-economy/)

Tariffs and taxes

Taxes and tariffs were key parts of Trump’s successful campaign. Still, there was

consensus on the panel that the rhetoric from the campaign could be very different from

the reality of policy that emerges over the next few years. Porter expects the next Trump

administration to adopt a lighter touch on the taxation front while putting the focus on

tariffs.

Although a 10% tariff on all imports would be significant, a number Trump proposed on

the campaign trail, Porter and Ian Lyngen shared the view that the tariffs may not trigger

runaway inflation. He said it would depend on how nations reacted, adding that a

stronger U.S. dollar could offset some of the inflationary effects.

“Tariffs aren’t necessarily reflationary,” said Lyngen. “In fact, they could be a bigger drag

on global growth.” In his view, Trump’s immigration policy could have broader

implications for the U.S. economy as employers struggle to fill vacancies.

Although Trump has often mentioned tariffs being a feature of his trade policy, Porter

expects his focus to be mainly on China. “I do not take the threats of heavy increases of

tariffs on China lightly at all,” he said. “I don’t know about a 60% tariff, but I would not at

all be surprised if we are looking at a significant increase in tariffs on China in the years

ahead.”

The Fed and Bank of Canada

Lyngen expects the Fed to cut rates again in December and then move to a quarterly

cadence of 25 basis point cuts in 2025.

Still, there are two ways the election outcome could result in either a slower return to

normal or a lengthier pause by the Fed, explained Lyngen. One way is to introduce

significant tariffs and fiscal reforms, although Lyngen feels that path is unlikely. The

other way would be if the equity market continues to rally further from here, which could

be unwelcome from the perspective of monetary policymakers as it could constrain their

options and create asset bubbles, he explained.

Although the Bank of Canada (BoC) has said it is not concerned with a policy gap with

the Fed or the near-term effects on the dollar, Brian Belski noted that could change if

upside risks for U.S. growth and inflation cause the Fed to be more cautious in terms of

their rate-cutting cycle.

While Porter agrees with Belski’s assessment, he said BMO maintains the view that the

BoC is on track to make a series of 25-basis-point cuts, ultimately taking the overnight

rate down to 2.5% by mid-2025. “Fundamentally, that’s one of the reasons why the

Canadian dollar has come under pressure.”

Market impact 

Despite the market’s reaction to the election, Porter and Belski downplayed the impact

that politicians have on the economy. “At the end of the day, politicians do not drive the

economy,” said Porter. “Fundamentally, there are 160 million Americans getting up

every day and going to work and a little over 20 million Canadians – that’s what

ultimately drives the economy. It’s not the political backdrop.”

The reason markets have been so strong has everything to do with fundamentals, said

Belski. “In my 35-year career, I’ve never seen certain areas of the market look so sound

in terms of being able to understand how earnings look, balance sheet strength, debt-to-

equity levels, operating income and things like return on equity, return on assets.”

Against that backdrop, Belski said his team remains very bullish on the U.S. and, by

extension, Canada. “As America goes, so goes Canada,” he explained. Currently, Belski

said that both the S&P 500 and the S&P/TSX are on pace to hit their targets of 6,100 and 25,000, respectively. 

“Canada is a true stock pickers market,” he said. “If you take out the biggest 60

companies in Canada, Canada is really a small mid-cap index.”

More broadly, with interest rates coming down and growth moderating, Belski is hopeful

investors will experience fewer days of the wild, volatile swings in markets.

For those anxious about what the election means for their portfolio, Belski said you have

to focus on the facts, not what pundits say on the news. “Don’t ever invest in noise or

emotion; invest in the facts,” he said.

This information has been prepared by Shannon Straathof who is an Investment Advisor for IA Private Wealth® and does not necessarily reflect the opinion of IA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered. IA Private Wealth® is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.