Donald J. Trump’s election victory reverberated through financial markets. And one week later, bets on the economy’s path and on corporate winners or losers — known as the “Trump trade” on Wall Street — are in full swing.
Stock prices for perceived winners have snapped higher: Bank valuations have soared, as investors anticipate more lenient regulations. The same is true for many large companies seeking to consolidate through mergers and acquisitions, which have frequently been blocked or discouraged under President Biden.
The share price of Tesla, run by Mr. Trump’s adviser and campaign benefactor Elon Musk, has surged by more than 40 percent since the election last week. Cryptocurrencies, which Mr. Trump has pledged to lend more support, popped as well, with Bitcoin hitting record highs.
Based on the president-elect’s promises of drastic immigration enforcement, which might increase demand for detention services, the shares of private prison operators also rose sharply.
Presumed losers slumped in price, including smaller green energy firms benefiting from Biden-era tax credits. A range of retailers and manufacturers reliant on imported goods have also suffered, because they may be negatively exposed to tariffs that Mr. Trump has floated.
The stock market overall, though, has ripped to new highs, surpassing the records it set earlier in the year.
Although a relatively strong economy will greet the next Trump administration, the president-elect’s proposals on trade, immigration, monetary policy and more will have uncertain effects, making some on Wall Street wary of the long-term outlook. And many citizens and civic groups are on edge, concerned about Mr. Trump’s pledges to settle scores and upend U.S. policy.
Yet investors and corporate leaders largely remain focused on market fundamentals: earnings growth.
Estimates of earnings growth for the next two years, already high, are being upgraded by some analysts since the election. Beyond deregulation, the Trump team’s plan to lower corporate taxes is likely to increase the earnings most companies retain, which can be used to fund expansions and increase payouts to shareholders through dividends or buybacks.
“We’ve already got a good earnings backdrop,” said Joseph Quinlan, head of market strategy for Merrill and Bank of America Private Bank, “and it just got better.”
Still, the market rally is not entirely driven by politics but rather, in some respects, is a reflection of investors’ relief that the election results are clear, staving off a drawn-out fight.
The scenario of “civil war or major cities flaring up with violence” did not come to pass, said Adam Parker, the founder of Trivariate Research, which advises large firms. “And we knew immediately who won — that brings relief, certainty.”
The prospect of higher tariffs clouds earnings forecasts.
A dizzying amount of uncertainty remains with Mr. Trump’s return to office more than two months away.
Industry groups and most economists have been warning that broad tariffs could eventually reignite consumer inflation, hurt company earnings and potentially cause a destabilizing global trade war.
“Retailers rely heavily on imported products and manufacturing components so that they can offer their customers a variety of products at affordable prices,” Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, said in a statement the day before the election. “A tariff is a tax paid by the U.S. importer, not a foreign country or the exporter. This tax ultimately comes out of consumers’ pockets through higher prices.”
Tariffs could “accelerate investment in reshoring” jobs from abroad, said Samuel Rines, an economist and a macro strategist at WisdomTree, a financial firm. At the same time, Mr. Rines said, “we have no idea what’s going to be implemented, and so what you’re seeing priced in is the least-worst scenario.”
That scenario involves “tactical” tariffs, meant to extract more advantageous trading terms from global counterparts. “I wouldn’t say there is any sort of guarantee that it will be tactical, but the market assumption is that’s the case,” he added.
The imposition of new tariffs — which can happen for a long period without congressional approval — could increase costs and narrow profit margins. Generally, firms can pick their poison: raise prices to maintain their margins as they pay the import taxes, leave prices unchanged to avoid losing consumer sales or make their goods in countries with lower or no tariffs.
That last maneuver can take time, though some companies are on the move, like the shoemaker Steven Madden, which told shareholders last week that it would cut nearly half of its China production within the next year to keep tariffs from eating into revenues. It is not clear, however, that this production will come to the United States.
Some companies are already telegraphing plans to raise prices.
“If we get tariffs, we will pass those tariff costs back to the consumer,” Philip Daniele, the chief executive of the vehicle parts supplier AutoZone, told analysts on a recent call — adding that the company would raise prices “ahead of” the imposition of tariffs, rather than wait.
Companies are uncertain about immigration, retaliation and the Fed.
Neil Dutta, an economic analyst at Renaissance Macro Research, believes the previously roaring economy “has lost steam.” Yet Mr. Trump is again inheriting an economy in fairly good shape, by historical standards.
And many investors seem to have concluded that he will be motivated to preserve it. This impetus, along with the president-elect’s inclination to claim credit for stock market gains, will most likely discourage him from doing anything to destabilize markets or the economy, the thinking goes.
That is complicated by Mr. Trump’s vow to start deporting millions of immigrants on “Day 1” of his presidency. Doing so would threaten the labor force in several sectors as well as the incomes of many households.
Many corporate leaders may be happy to see Biden administration regulators go. But Brent Donnelly, the president of Spectra Markets, a market research firm, notes that executives may be exchanging one headache for another: the wrath of Mr. Trump, who has railed against those he views as enemies of his agenda.
“There’s a lot of fear now in corporate America that you can’t say anything negative about the dear leader,” Mr. Donnelly said.
Publicly pushing back against Mr. Trump is “a headline risk” that could hurt a company’s stock price, he said, adding, “All it takes is one tweet.”
The president-elect has also asserted that he should have more say over interest rates. Current and former Federal Reserve officials say this threatens the independence of the central bank, which has a mandate to set rates in order to steer the economy toward maximum employment and price stability over the long term.
The Fed chair, Jerome H. Powell, defended the institution at a news conference last week, responding with a crisp “no” when asked if he would step down if Mr. Trump asked him to do so.
The multitrillion-dollar bond market — which tends to react negatively to news that inflation might tick higher or that the Fed might not be resolute in containing it — calmed after Mr. Powell’s remarks, but remained jittery.
While the election outcome would not affect any “near-term” policy decisions, Mr. Powell said, Fed officials stood ready to react to any policy changes that increased inflation risks, by lowering interest rates more slowly, or not at all.
Because Mr. Trump has promised lower interest rates for car and home buyers, some tension is already in the air.
Mr. Musk, the president-elect’s confidant, has also agreed with statements online that there would be an “initial severe overreaction in the economy” that causes a temporary downturn if Mr. Trump enacts his plans. Such speculation clouds the outlook further.
For now, though, the “animal spirits” of the market are ebullient, Mr. Quinlan of Merrill and Bank of America said.
“If he can transactionally make things happen that lower costs, boost productivity, create more predictability,” he said of Mr. Trump, “that’s all pretty positive for the second half of the decade for growth. So we’re sanguine.”
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