Trump’s potential 2024 victory may strenghten the US dollar and key stock sectors.
Protectionist policies could increase trade tensions, impacting emerging markets and global commodities
By Fayza Nawra Avanitanya, Muthia Noor Safitri, Kenzie Aryasatya, Imam Fakhri Prayogo Harianto
November 8, 2024 at 16:30 GMT+7
Trump’s predicted victory in the 2024 election could have significant ramifications for the US dollar, inflation, and the Federal Reserve’s interest rate policies. Analysts anticipate that the dollar will strengthen as pro-growth policies, including tax cuts and higher inflation targets, drive interest rates upward. This increase in rates would make the dollar more attractive to global investors.
At the same time, protectionist measures and tariffs under a new administration could slow economic growth in Europe and Asia, further enhancing the dollar’s status as a safe-haven currency. While the dollar may gain, cryptocurrencies and traditional safe-haven currencies like the Swiss franc could also see increased demand, whereas emerging market currencies might face challenges due to a stronger dollar and trade-related pressures.
Donald Trump and Melania in West Palm Beach, Florida | Source: Bryan Snyder/Reuters
A potential shift in leadership is likely to boost various US stock sectors, particularly technology, defense, and fossil fuels, driven by proposed corporate tax cuts and deregulation. The tech sector could benefit from reduced regulatory scrutiny, while defense contractors may see increased demand due to higher military spending. The fossil fuel industry stands to gain from expanded US drilling and the rollback of environmental regulations, potentially revitalizing oil, gas, and coal sectors.
However, escalating trade tensions with China could pose risks, especially for US agricultural exports like soybeans, which may face retaliatory tariffs. Emerging markets in Latin America and Asia could encounter challenges from potential US tariffs, leading to reduced trade flows, currency pressures, and volatility in commodities like copper, which are critical to these regions’ economies.
Trump Campaign Rally Car in Gastonia, North Carolina | Source: Megan Varner/Reuters
Policies favoring traditional energy sectors could also increase the value of fossil fuel stocks by rolling back green regulations and easing restrictions on the oil, gas, and coal industries. Potential plans to rescind unspent funds from the Inflation Reduction Act, which supports clean energy projects, may further benefit the traditional energy industry.
However, significant changes might require congressional action, with some Republican lawmakers supporting parts of the Act, these moves, coupled with efforts to replace SEC Chair Gary Gensler, could undermine sustainable investments, weakening the ability of US ESG funds to drive corporate policy changes. Additionally, market sentiment suggests a Republican-led administration could lead to higher US Treasury yields due to increased government borrowing and spending, which may have broader global fiscal implications.
Sources:
CNBC
Reuters
WSJ
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