President Trump

"It's déjà vu all over again" – Yogi Berra

Donald Trump will be the 47th President of the United States. He has won the electoral college and is on the way to winning the popular vote (which he did not do last time). The Republicans have taken the Senate, and may retain the House (results there are unclear).

Risk assets look set to rally on the news (US stock futures are up by around 2%). Safe havens are mostly weaker: the 10-year US Treasury note yield has risen by more than 0.1 percentage points to 4.4%, with gold down by around 0.5-1%, but the US dollar has risen by 1-2% against the euro and sterling, and by more against emerging currencies – probably because interest rate expectations are slightly higher, and because of the likely increase in tariffs (see below). In 2016, the markets' initial response was a firmly risk-off move, a mirror image of today's – perhaps because investors are aware that the earlier response to a Trump win was quickly and (eventually) strongly reversed.

What will Trump do now? It seems likely to be similar to what he did last time, though it will depend on the House results. A Republican-controlled Congress would enable him to do a lot more than a divided one – and Trump himself has a stronger grip on his party now than he did in 2016, when Republicans won both Senate and House. It will also depend on his cabinet and other appointees, on his advisers – and, as ever, on the wider economic climate, the global business cycle.

The key policy variables for markets are tariffs, taxes – and talk.

• Trump plans to raise tariffs, and to higher levels than in his first term, which is bad for the global economy and business. Exactly how bad will depend on other countries' retaliation – especially China, which is itself highly protected to begin with (that's Trump's point).
• But he is also planning to cut US corporate taxes, which is good for the global economy and business. Exactly how good will depend on what he is able to implement, and on whether his advisers pay more attention to the 6-7% federal deficit than he seems to. Last time, tax cuts eventually mattered more than tariff increases, but the magnitudes may be different now.
• Trump will talk recklessly and make the world seem more dangerous in all sorts of ways (weakening NATO and provoking China, for example). This will hit risk appetite and investment, though the effects will be much less visible than those of tariffs and taxes.

We would try to keep an open mind about how these variables play out – which means, for now, not advising any significant portfolio changes, but staying constructive on the global economy and business.

The excerpts below are from the note we posted in early November 2016.

"There will be more to his policy proposals than protectionism… and US policy is not the only moving part in the global economy and markets… Markets are callous. Whatever our personal feelings about this result – which is after all the outcome of a free and fair vote by the world's second-largest democracy, and its informal policeman – they will focus on the prospective bottom line for the economy and business. And that may not have changed drastically overnight."

We think these comments are valid now. Then, though, we were arguing against a view of US stocks that was prematurely pessimistic.