Well, it is finally over. Of course, we are referring to the end of the U.S. election – or almost the end, as there is still some counting, jostling and potentially some litigation to continue. But for the most part, like the outcome or not, it is over, and the Republicans have won both the Presidency and the Senate, and it is looking like they will take the house as well. We will delve further into that trifecta below.
The big winners were the “betting sites” as they were once again more spot on to the outcome than the polling. Many blamed the polling for a lot of personal bias that skewed the numbers. Either way, the betting sites got it right and had the Trump trade pushing markets higher a couple weeks into the election as we suspected it would. The day after, they had an even bigger run, and it continues as of writing here on Thursday.
We had stated that we would look to get close to, or even be fully invested by the election day. As promised, we are now fully invested and our prediction has been positive for the portfolios. As of market close on Wednesday, the 8th, the equity (or stock) component of the model portfolios was up about 21% year to date after fees.
We are well in the Green Zone and positive on all of our signals. We do expect that to continue through to the end of the year with the typical Santa Clause Rally. The indexes should continue to rally as well, and we look to be selective from here for opportunities to outperform.
We have been consistent in our thoughts that the markets would run higher the few weeks prior to the election as they typically do. It did do so, giving us the opportunity to get fully invested after the volatility of the late summer and fall. During those months, markets did indeed pull back some, but surprisingly were not as volatile as in recent years during this seasonal period. From a financial perspective, it did not matter who would be leading the polls as investors would simply be pleased the long process was coming to an end and some certainly would be provided. Our only concern was that once complete, we would have to watch how investors interpreted one party obtaining the trifecta: winning all three of the Presidency, Senate, and House. That is because then the party in control could enact more legislation, make more changes, and potentially shake things up positively or negatively. Markets prefer when Congress is in a stalemate and therefore, less likely for damage.
The trifecta is looking more and more likely as the final counts come in. So far, markets have not reacted negatively. We are still almost three months out before Trump and the Republicans can take control. Then, we will have to watch and see how the administration enacts policy and if they affect the markets negatively. For now, we will enjoy the push higher, but as always, we will be ready to go on defense.
Interest rates worldwide are on the decline based on the need and view that inflation is being tamed, but also largely due to the fact that economies are slowing down. So far, there are no signs of recession or a hard landing. The U.S., therefore, dropped rates again today, this time by 0.25%. The concern however is that a Trump administration could drastically increase tariffs, lower taxes, increase spending and become more protectionist in the U.S. By closing the border and possibly returning illegal immigrants, it could drive up wages in the U.S. This has all the potential to thereby push inflation higher once again. We emphasize these are not certainties and there may be other positive, if not many offsetting growth initiatives to keep it all in check. Again, these are concerns and we will be watching carefully.
The wars in Ukraine versus Russia continue – and North Korea has even put boots on the ground. Israel versus Iran and its proxies appears to be ongoing. Trump has vowed that he will stop these wars. While it is not known how he will pursue it, it may be of comfort that there were no wars during his tenure. We will take a wait-and-see approach. Ceasefires would be welcome for humanitarian reasons obviously, but markets would certainly see volatility should any escalation or boots on the ground by the U.S. occur.
The Canadian stock market has also held up relatively well year to date. The Loonie, like most currencies versus the USD, have however has taken a beating. The Canadian economy is already weaker than the U.S. and with potential trade and tariff issues, those could be exacerbated and spell further trouble for the loonie and our economy. That said, the drop in the rates today is pushing the USD down, which may be the beginning of a trend. Typically, as the US Dollar declines, markets globally move higher, which will prove to be beneficial to our portfolios.
We provide the following commentary regarding the election and its implications in the report Special Report: U.S. Election 2024: Red Tide from Douglas Porter, CFA, Chief Economist and Managing Director, BMO Economics:
The U.S. election results will shift the economic landscape, particularly if the Republicans also manage to hold onto the House. However, there are still plenty of questions around the extent to which the campaign rhetoric translates into policy reality. The lean will certainly be to more tax relief, although the positive growth impact will be countered somewhat by broad trade tariffs and uncertainty, accompanied by a firmer U.S. dollar and higher bond yields. The latter are driven by bigger budget deficits, modestly higher inflation risks, and possibly less Fed easing than previously expected. On balance, this puts some upside risk for our 2% growth call for 2025, but tax relief will take time and so the major impact on growth may be more of a 2026 story. For the Fed, rates are still on track to fall 25 bps this week, and likely by 25 bps again in December, but we look for a slower pace of rate reductions in 2025, with the terminal rate now likely 3.25%-to-3.50% (50 bps higher than previous).
The results are a mixed bag for the Canadian outlook. Ultimately, a healthy U.S. economy is the single most important factor for Canada, regardless of who is in charge. While there is likely to be lots of unwelcome trade uncertainty ahead of the 2026 USMCA review, Canada does have relatively well-balanced trade with the U.S., especially aside from oil exports. The Bank of Canada may need to tread a bit more cautiously on the rate cut front given the sustained downward pressure on the Canadian dollar alongside the prospect of less aggressive Fed cuts and a firmer U.S. growth outlook. Here is a link to a full copy of the report U.S. Election 2024: Red Tide (bmo.com). and Be also sure to check out the links to the “Focus: in the e:Newsletter email or on our website.
There will be both potential upside and possible pitfalls with the results of the election. It will be very much a wait-and-see. For now, markets are pleased with the end of the cycle and are seeing at least short-term upside with the results. Our Equity Action Call is fully in the Green Zone and all indicators are flashing positive. We will enjoy what we expect to be a good run into the end of the year and to reassess daily as needed. Of course and as always, were are ready to pivot when the facts change and to go on defense and or raise cash and fixed income.
Should you have any comments, questions, or concerns regarding the Monthly e:Newsletter, your investment portfolio or financial plans, or if you would like to meet, whether it by phone, video conference or in person, please contact any member of our team anytime.
Best Regards,
John, Victor & Megan