Will the Trump trade change everything? Markets prepare for the US elections

Written by: Supriya Kadu

Edited by: Pinky Deshmukh

Last Updated: November 04, 2024

Summary: If Donald Trump wins the presidency, tax cuts are possible and markets can be volatile for some time before leveling up.

With polling trends pointing toward former President Donald Trump winning the election, markets are preparing for a possible "Red Sweep" ahead of the US presidential elections.

The state survey and betting markets indicate Trump is more likely to win the presidential elections, which can cause major changes and extremely high market volatility globally.

The potential impact of Trump's victory on American economic policy is what gave rise to the "Trump Trade" movement. Markets are quickly adjusting their expectations for further fiscal stimulus through tax cuts, which the Republican agenda could emphasize.

What will happen if Trump comes to power?

Apart from investing more money into infrastructure, technology, and defense, it may first prolong the tax cuts from 2017.
Over the ten years, the fiscal expansion can increase the deficit by an estimated $7.5 trillion, boosting the US dollar and raising bond yields. Short-term volatility is reflected in currency markets and bond yields.
The boost in the US dollar will provide a counterbalance to the tariffs that the Trump administration has proposed, especially those that target China. These include a 60 percent tariff on Chinese imports and a global 10 percent import tariff.
As demand for US debt rises as a result of expected fiscal stimulus, investors are placing bets on the rising US Treasury yields.

What will happen if Kamala comes to power?

Harris is anticipated to maintain some of the Biden administration's spending plans while raising taxes on big businesses and the wealthy.
The Harris platform favors policies that redistribute income, increase corporate taxes, and prioritize renewable energy.
However, experts warn that the Harris-led Congress may stifle the economy and cause policy deadlock.

According to Emkay's study, there will be an impact on India due to US polls. Indian shares will experience a brief bounce following a Republican victory with the surge in the US market.

The increase in the US dollar and a higher US yield can also have an impact on the Indian rupee, which is already suffering from the weakening of the Chinese yuan. The Reserve Bank of India's monetary objectives can be disrupted by forex volatility, which can postpone rate cuts.

Investors are eagerly waiting for the U.S. presidential election results. They expect a disruption in the global supply chain and US-China trade if Trump wins the election.