On November 5th, Former President Donald Trump won the 2024 election. Many people attribute his victory to Americans’ dissatisfaction with the economy. According to exit polls, nearly half (45%) of voters feel worse off financially than during Trump’s previous term.

During Trump’s campaign, he promised to cut taxes and cultivate a more business-friendly environment, spurring optimism for the economy. He also vowed to end the “inflation nightmare” and tackle illegal immigration.

Below, we’ll examine the immediate impact of Trump’s victory on the stock market and various currencies. We’ll also explore how his proposed policies may shape the broader U.S. economy over the coming years.

The Stock Market’s Reaction to Donald Trump’s Election Win

Stocks surged to record levels on Wednesday, November 6th, after confirming Trump’s victory.

  • The Dow Jones Industrial Average rose over 1,500 points, or 3.6%, marking the first time the blue-chip index has gained more than 1,000 points in a single day since November 2022.
  • The S&P 500 increased by 146 points, or 2.51%, while the Nasdaq Composite increased by nearly 3%.
  • The Russell 2000 index, which monitors small-cap stocks, increased by nearly 6%.
  • The S&P 500 bank index, a benchmark for financial stock, climbed nearly 11%.
  • Robinhood Markets saw its most significant overnight trading session, with 11 times higher than average trading volumes.
  • Outspoken Trump supporter Elon Musk’s Tesla (TSLA) stock price shot up 14.75%.

This spike in stock market activity was likely caused by the resolution of the election’s uncertainty. According to John Bai, Northeastern professor of finance, “The number one rule in the stock market is that the stock market doesn’t like uncertainty. But it does like the resolution of uncertainty.”

Trump’s swift victory allows companies and investors to make their future spending and investment decisions more confidently. His proposed policies also give many investors the perception that tax-friendly, business-friendly policies are on the horizon.

Cryptocurrency

Cryptocurrency enthusiasts have shown much support for Trump, who recently posted on X that he plans to make the U.S. the “crypto capital of the planet.” Trump’s recent win sent ripples of optimism throughout the cryptocurrency space. Within 24 hours, Bitcoin jumped from $69,492 to an all-time high of $75,395.

Crypto investors are excited about a second Trump term for the following reasons:

  • Trump is considered a “pro-crypto” candidate – In July of 2024, Trump headlined the largest bitcoin conference of the year in Nashville, Tennessee. There, he promised to establish a federal Bitcoin reserve. “For too long, our government has violated the cardinal rule that every Bitcoiner knows by heart: Never sell your Bitcoin,” Trump said. He also expressed interest in bringing more Bitcoin mining operations into the country.
  • Trump promised to fire Gary Gensler – Biden-appointed U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has taken a hardline approach to regulating cryptocurrencies. His goal is to ensure crypto markets comply with existing securities laws.

Gensler’s “war on crypto” has made him a maligned figure among crypto investors. Trump pledged to fire Gensler on day one of his second term, reinforcing his pro-crypto stance. While Trump may not have the legal power to do so, some analysts predict that Gensler will resign when Trump takes office.

Trump has floated many promising ideas for crypto, but only time will tell if he follows through with them. A lack of swift action could introduce volatility into the crypto market.

Global Currencies

The U.S. dollar rose sharply after the election, along with stocks and cryptocurrencies. It posted its largest single-day gain against other currencies in eight years and achieved its strongest position in four months.

While the U.S. dollar climbed, other currencies moved in the opposite direction. Most notably, the Mexican peso fell to its lowest level in over two years. Likewise, the euro faced its most significant daily drop since 2020’s Covid crisis.

A strong U.S. dollar can strengthen investors’ confidence in American assets. However, it can also hurt U.S. exports and make it more expensive for other countries to repay their dollar-denominated debt, potentially increasing financial instability.

Trump has historically preferred a weaker dollar because it encourages economic growth. As a result, he faces a delicate balancing act between pursuing his stated fiscal policies and maintaining favorable conditions for U.S. exporters.

The Broader Economic Consequences of a Second Trump Term

Now that we’ve explored the short-term reaction to Trump’s victory let’s examine how his proposed policies may influence other aspects of the economy.

Tax Cuts

During Trump’s first term, he enacted the 2017 Tax Cuts and Jobs Act (TCJA), marking the most significant tax code change in three decades. This legislation slashed corporate tax rates from 35% to 21% and lowered individual tax rates.

Trump intends to extend the TCJA during his second term, which is currently set to expire at the end of 2025. This extension will prevent one of the most significant nominal tax hikes in American history. Trump’s other tax proposals include:

  • Removing the $10,000 limit on the state and local tax (SALT) deduction.
  • Eliminating taxes on Social Security, tips, and overtime pay.
  • Cutting corporate tax rates to as low as 15%.

Under these tax policies, Americans of all income levels can expect decreased personal income taxes. However, the extent of these changes will largely depend on which party gains control of the House of Representatives. While Republicans won control of the Senate earlier this week, the House of Representatives has yet to be determined.

Government Debt

Many Americans welcome Trump’s tax cuts. While they should stimulate economic growth in the short term, they will also cause substantial increases in deficit spending. Trump’s tax policies can potentially increase the federal deficit by a whopping $7.75 trillion over the next decade.

The looming increase in government debt has already scared off many bond investors, increasing bond yields on Wednesday. The benchmark 10-year Treasury yield shot up to 4.48% before retreating slightly.

Tariffs

One way Trump plans to raise federal revenue is through aggressive tariffs. He’s proposed a 10% tariff on all foreign goods and a 60% tariff on Chinese imports. Trump believes these tariffs will bolster American businesses by motivating consumers to purchase US-made goods.

However, Trump’s tariffs may also drive prices higher on various products as foreign retailers pass on their increased costs to consumers. Here’s what the following organizations predict about Trump’s tariffs:

For these reasons, some analysts suspect that Trump’s tariff proposals may be a negotiating ploy to secure better trade deals with foreign countries.

Renewable Energy

Another way Trump plans to offset his tax cuts is to revoke any unspent funds from Biden’s 2022 Inflation Reduction Act (IRA). This bill subsidizes clean energy tax credits for solar energy projects, electric vehicles (EVs), and other renewable energy initiatives.

Deregulation

While Trump’s policies may hinder the renewable energy sector’s growth, they should help prop up the fossil fuel industry and several others. He plans to continue his deregulation agenda in his second term. “Remove the anchor dragging us down! We’re going to cancel every needless job-killing regulation,” Trump said.

Trump’s deregulation agenda will impact the energy, financial, and healthcare industries most significantly since Trump plans to roll back critical regulations in these areas, including:

  • Dodd-Frank Act regulations – Trump wants to dramatically streamline the Dodd-Frank Act’s financial regulations to make it easier for private companies to raise capital. If enacted, financial institutions would benefit from a more favorable operating environment, which could lead to higher profits.
  • Green regulations – Many green regulations currently limit oil and gas drilling and mining. However, one of Trump’s favorite campaign slogans is “Drill baby, drill.” He plans to boost fossil fuel production by deregulating the industry and freeing up more federal lands for drilling.
  • Healthcare regulations – Trump wants to increase competition, transparency, and flexibility of choice in the healthcare industry by reducing regulatory oversight. While he hasn’t released a specific plan yet, Trump will likely reverse several Biden-era regulations.

While deregulation can energize growth in specific sectors, it’s a double-edged sword. Fewer regulations may increase consumer risk and spur instability in certain financial markets.

Labor Market

Throughout all three of his presidential campaigns, Trump has been outspoken on immigration. This year, he wants to enact mass deportations, removing an estimated 11 million people. He also plans to secure the U.S.-Mexico border to prevent further illegal immigration.

Trump’s strong stance on immigration will have far-reaching economic impacts, particularly in sectors that rely on low-wage labor, such as construction, agriculture, and hospitality. The resulting wage increases in these sectors may contribute to inflation as businesses pass on their increased costs to consumers.

Some analysts predict that Trump’s immigration plans will have the most significant economic impact of all his policies due to their long-term price impacts.

Inflation

Many Trump supporters believe that Trump can improve inflation. However, mainstream economists suspect that his policy proposals will make inflation worse, including his:

  • Assertive tariffs on imported goods
  • Low-wage migrant worker deportations
  • Calls to have the Fed cut interest rates prematurely

These policies may spike prices and reignite inflation. If implemented, the Peterson Institute for International Economics estimates that inflation could jump from 6% to 9.3% by 2026 rather than falling to its pre-election projections of 1.9%.

Interest Rates

The past few years have been plagued by record-breaking inflation. The Federal Reserve started hiking up interest rates in 2022 to bring the inflation rate closer to its desired benchmark of 2%. After getting close to this goal, the Fed enacted a 50-basis-point rate cut in September 2024 and predicted several more over the coming years.

Learn More: What You Need to Know About the Fed’s September 2024 Rate Cut

Two days after the election, the Federal Reserve implemented a second rate cut of 25 basis points, bringing the benchmark rate down to a range of 4.5% to 4.75%. However, if Trump’s new policies spark inflationary pressures, the Fed may take a more cautious approach to 2025’s rate cuts.

When asked about the incoming administration’s monetary policy, Powell said, “We don’t guess, we don’t speculate, and we don’t assume. We don’t know what the timing and substance of any policy changes will be. We therefore don’t know what the effects on the economy would be.”

While Powell is taking a watch-and-see approach, Wall Street Journal economists anticipate that Trump’s proposed policies will increase the inflation rate by up to 1%, pushing it back above 3%. This could lead the Fed to slow down its monetary easing policy to regain control over inflation.

Here are some other areas that could be impacted if the Fed doesn’t cut interest rates as quickly as expected during Trump’s term:

  • Mortgage rates – If the Fed reduces rates more slowly, mortgage rates may remain elevated, making it more difficult for potential homebuyers to purchase homes.
  • Stock market volatility – The stock market’s initial reaction to Trump’s win has been positive, but if interest rate cuts slow down, stock valuations may decrease. Investors may also become more risk-averse, shifting from equities to safer assets.
  • Bonds – Bond yields initially rose this week in anticipation of Trump’s federal deficit spending. If Trump enacts his proposed policies, the government may need to issue more debt to finance those initiatives, pushing bond yields even higher.

Stay Up to Date With Alden Investment Group

As you can see, Donald Trump’s election win presents potential opportunities and challenges to the U.S. economy. Many of these consequences hinge on his ability to pass his proposed policies successfully.

No matter what happens during Trump’s second term, it helps to have a trusted financial advisor by your side. Your advisor can help you navigate the impact of Trump’s policies on various asset classes, optimize your portfolio, and take advantage of any potential tax cuts.

At Alden Investment Group, we can match you with one of our many experienced financial advisors. Contact us today to learn more.

Media Contact: Laura DeGraff

Email: info@aldeninvestmentgroup.com
Phone: 215-572-8700
Website: www.aldeninvestmentgroup.com

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