The narrative that US President-elect Donald Trump will be good for the stock markets may only be partially accurate.
Trump’s policies are good for the US stock market, says Isaac Lim, chief market strategist at investment platform Moomoo Singapore. “Whether it’s going to be really good for Asia or the rest of the world, it really remains to be seen.”
Speaking on a panel at The Edge Singapore’s Year-End Investment Forum on Nov 30, Lim notes that Trump is “already starting his rhetoric” by threatening to impose additional tariffs on China once he takes office.
However, Trump could be facing a hardened world in his second term; the Hang Seng Index rose some 0.7% “in defiance” when Trump won on Nov 6, says Lim. “It was very interesting that now the world sort of knows that Donald Trump is a known unknown, so we can react accordingly.”
The market could also outperform despite Trump’s economic sabre-rattling. Trump’s first presidency saw the S&P 500 rise by some 64%, says Lim. “It’s pretty impressive that despite all these pandemic challenges, the S&P still performed pretty well under Donald Trump.”
In comparison, the S&P 500 rose by about 106% during former President Barack Obama’s two terms, and the index rose by 51% under outgoing President Joe Biden’s term, which is set to end on Jan 20, 2025.
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“While we can have all these narratives, all this macro story to guide us, what the markets are really telling us is that it doesn’t really matter who is the incoming president,” says Lim. “What really matters is that the S&P will still continue to move along the way, and we will still continue to see upward trajectory growth.”
Lim (right) with The Edge Singapore’s associate editor Felicia Tan
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Two broad themes
Trump wants to deregulate the energy market and build up the US’s “traditional” industries, says Lim, citing the president-elect’s opposition to Nippon Steel’s US$14 billion ($18.9 billion) purchase of US Steel, a company founded back in 1901 and whose growth mirrored the industrial might of the US at that time.
Trump has voiced his opposition as early as February this year, and he reiterated this in a Truth Social post on Dec 3, writing: “I am totally against the once great and powerful US Steel being bought by a foreign company, in this case, Nippon Steel of Japan. Through a series of tax incentives and tariffs, we will make US Steel strong and great again, and it will happen fast! As President, I will block this deal from happening. Buyer beware!”
Biden and outgoing vice-president Kamala Harris have also opposed the acquisition.
Another “broad theme” that investors should keep in mind is how Trump interacts with US allies “or outright competitors”, says Lim. “For Donald Trump, watch what he does, not what he says, because he says a lot of things.”
Trump has nominated Scott Bessent as his pick for US Treasury Secretary, and the hedge fund manager “definitely has his work cut out for him”, says Lim.
Chief among them is the US’s total debt of some US$36.09 trillion as at Nov 29. “He will have to manage very carefully how to issue more US Treasury [debt] so that he can pay off near-term expiring debt while not risking a government shutdown,” says Lim.
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Impact on S-REITs
When the US Federal Reserve lowered interest rates by 50 basis points (bps) in September, Lim said investors should start accumulating S-REITs.
The sector, as a whole, later suffered a reversal, with US rates not falling as quickly as expected.
Now, even with an impending Trump presidency, which is suggested to have an inflationary slant, Lim stands by that view. “You have to break it down to what category of REITs you are really looking into; are you looking into data centres, offices, storage, warehousing or healthcare?”
While REITs are “still a good asset class”, investors now have to “take a bit more caution” when selecting names, adds Lim. “For [Fed chair] Jerome Powell, the focus on him cutting rates now is not very strong because yield has been going up. So, I don’t know if he’s going to cut aggressively [but] if he’s going to cut quickly, that may also introduce a bit more volatility to the markets.”
The next Federal Open Market Committee meeting is scheduled for Dec 17 and 18, US time. Following a 25 bps cut in November, the target range for the federal funds rate is currently between 4.5% and 4.75%.
While the Fed has talked about its goal to bring rates down to 2%, Lim is sceptical. “I personally don’t think they’re going to be able to hit 2% ... By the end of 2025, I think we might see somewhere around 2.8% to low-3%.”
To control rates, the central bank and the government must work “closely together”, says Lim. While the central bank will use monetary policy, Trump’s cabinet will use fiscal policy.
But Trump is “sold on the idea of deregulation” and weakening the US dollar, he adds. “All these things, coupled with his protectionist agenda, will drive inflation in the US.”
Essentially, although Trump favours a weaker exchange rate, his policies are likely to have the opposite effect. The market is already moving to price in that dissonance, says Lim, “which is why interest rates — the 10-year yield, at least — are on the uptick”.
“So, interest rates, for me, are not going to go down to the 2% target. For me, it’s high-twos to low-threes by the end of 2025.”
Photo: Samuel Isaac Chua/The Edge Singapore
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