The results are in, and Donald Trump decidedly won the election last night, which includes a Republican victory in the Senate and, while the House is still in question, the Republicans currently hold a slight lead. Now many investors are asking what this outcome may mean for markets, fiscal policy, the overall economic landscape and their portfolios.

While elections can bring about shifts in policy and regulation, it’s worth noting that markets, in the long term, respond to a wide range of forces, from global economic trends to Federal Reserve decisions. Here’s what we’re keeping an eye on as we head into the post-election era:

‍

1. Market Response: Early Reactions vs. Long-Term Trends

Elections often trigger short-term market volatility as investors anticipate potential shifts in policy. Today was no different, with the market being up big and reactions across various sectors reflecting expectations about new or adjusted policies. Historically, markets tend to settle and move beyond election-induced volatility once the dust clears. With that in mind, the initial market reaction can serve as a short-term signal, but investors should maintain a focus on long-term objectives.

With a Republican-led government, we could see policymaking pick up speed, opening the door for quicker tax reforms. Some analysts think this might give corporate earnings a 4-5% lift. Trump has a pro-business stance and likely tax cuts set a favorable stage for sectors tied closely to the domestic economy—think small capitalization companies, energy, industrials, and financials.

But there’s a catch. Higher tariffs, especially on imports from China, could weigh on consumer-driven sectors and parts of manufacturing. Changes in tax policy, healthcare regulations, or energy initiatives could benefit or challenge specific industries, so diversified exposure across sectors remains a prudent approach.

‍

2. Fiscal Policy: What to Expect in Terms of Spending and Taxation

If Republicans secure the House, there’s a strong chance the 2017 tax cuts could be extended beyond 2025. That’s a big deal. As mentioned above, tax cuts tend to boost business profits, and business profits tend to boost stock prices. In addition, lowering the corporate tax rate to, say, 15% would likely translate into higher earnings for companies, potentially propelling the S&P 500 to new heights.

But there’s always a cost, and here’s where the SALT (State and Local Tax) cap repeal debate comes in. Repealing the cap would ease the tax burden for high-income households—specifically, about 92% of the benefit would go to the top 10% of earners, while less than 1% would reach the bottom 60%. On the flip side, removing the SALT cap would swell the deficit over the next decade.

Republicans might also push for fiscal initiatives and deregulation aimed at fueling corporate growth and boosting market sentiment. That would mean good things for sectors like energy, defense, and financials, which tend to benefit from a lighter regulatory touch. But there’s a trade-off: aggressive fiscal measures could keep inflation risks simmering. When you inject more stimulus into an economy already dealing with price pressures, inflation has a way of sticking around.

In the end, whether it’s tax cuts, deregulation, or anything else on the fiscal front, the main takeaway is this: what’s good for corporate earnings can be good for the market. But nothing comes without strings attached.

‍

‍3. The Federal Reserve and Inflation Management

With a stable job market and inflation moderating, the Fed seems set to keep things easy on the interest rate front through 2025. Lower rates mean that shorter-term bonds could see some upside, though the story might be different for long-duration bonds as rising term premiums put pressure on them. Equities, especially growth stocks that are sensitive to interest rates, could see some tailwinds from this environment.

But there's a twist. The recent climb in 10-year Treasury yields, from 3.62% to 4.42%, is a reminder that higher rates bring higher corporate borrowing costs. That’s a headwind for companies looking to expand or refinance. Still, if the Fed follows through with anticipated rate cuts tomorrow through early 2025, the equity markets could find some relief. Lower rates generally make stocks more attractive, supporting valuations and potentially keeping markets in positive territory as we head into 2025.

Rates, for better or worse, will remain a dominant storyline as investors navigate both the upsides and downsides they bring to different parts of the market.

‍

4. Gold, Bitcoin and the Future of Digital Assets

We think it’s safe to say we will see more spending and, with currency worries on the rise, demand for assets like gold and bitcoin is likely to keep growing, fueled by geopolitical tensions and the weight of national debt. Central banks moving away from dollar reserves only adds momentum to this trend.

Digital assets, especially Bitcoin, have been in the regulatory spotlight in recent years, and the 2024 election results will likely influence the future of cryptocurrency regulation. With Trump now actively discussing regulatory frameworks for digital assets, clarity and stability could emerge in the space. Clearer regulations may increase the legitimacy of Bitcoin and other cryptocurrencies, potentially encouraging more institutional adoption.

Bitcoin’s appeal as a hedge against inflation and market volatility has grown, especially during periods of economic uncertainty. If inflationary pressures persist, Bitcoin could become more attractive as a hedge, though increased regulation may impact its adoption and growth. For investors with an interest in digital assets, this evolving landscape suggests that patience and careful positioning will be critical.

‍

5. Key Policies and Long-Term Market Effects

Beyond the immediate market responses, several policy areas will influence the economy and the investment landscape over the coming years. Policies around trade, taxes, and immigration will shape specific market segments.

Trade policy shifts could impact global supply chains, especially if tariffs or trade agreements are adjusted. These changes can have a ripple effect on inflation and sector performance, particularly in manufacturing, technology, and consumer goods.

Under a Trump administration, immigration levels would likely decrease, with annual intake potentially dropping to 750,000 from around 1.1 million in pre-pandemic times. While regulations might ease in sectors like energy, finance, and labor, tech companies could still face scrutiny, especially on antitrust issues.

‍

Moving Forward: Staying Focused Amid Uncertainty

Election cycles are often marked by heightened emotion and market noise. As we move forward, here are a few key strategies for investors:

Maintain a Long-Term View: History shows that markets ultimately respond to economic fundamentals more than political cycles. Staying invested with a diversified, long-term approach can help weather any short-term volatility.

Position with Fiscal and Monetary Policy in Mind: Keep an eye on the Fed’s stance on inflation, interest rates, and other indicators that have broader impacts on markets. Fiscal policies, while important, typically have a more gradual impact on the overall economic landscape.

Consider Tax-Efficient Strategies: With potential tax changes, now is the time to discuss proactive strategies to protect wealth through tax-efficient investments.

Stay Calm in the Face of Headlines: Financial media and election cycles can increase stress levels and tempt investors to make hasty decisions. Staying disciplined and filtering out short-term noise can help ensure that portfolios are aligned with long-term goals.

‍

At GatePass Capital, we’ll continue to monitor the evolving landscape and provide insights to help our clients navigate the post-election environment. If you’d like to discuss how the recent election might impact your personal financial plan, reach out to schedule a conversation with our team.

‍

‍

Unless otherwise indicated, commentary on this site reflects the personal opinions, viewpoints and analyses of the author and should not be regarded as a description of services provided by GatePass Capital or its affiliates. The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any security or advisory service. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. While all information presented, including from independent sources, is believed to be accurate, we make no representation or warranty as to accuracy or completeness. We reserve the right to change any part of these materials without notice and assume no obligation to provide updates. Nothing on this site constitutes investment advice, performance data or a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Investing involves the risk of loss of some or all of an investment. Past performance is no guarantee of future results.