Despite a series of policy shocks and unconventional actions by US President Donald Trump, markets have largely remained unfazed. The S&P 500 has risen by 3.3 per cent over the past month, while the ASX 200 has climbed 3.7 per cent, driven by strong performance in commodity markets, particularly silver, gold, and copper. Macquarie strategist Viktor Shvets suggests that investors may be underestimating political and geopolitical risks, but also that Trump’s actions might support certain tailwinds like global reindustrialisation and a weaker US dollar, benefiting growth outside America.
Shvets identifies the US midterm elections as a critical event for investors. A Republican victory could embolden Trump, leading to further consolidation of power and weakening of institutions like the Federal Reserve. Conversely, a strong showing by the Democrats could restrain Trump’s influence and strengthen these institutions. Trump appears to be aware of the election’s importance, implementing stimulus measures to boost the US economy. These include tax cuts on overtime pay and tips, an increased child tax credit, and incentives for companies to invest and hire.
Apollo Global Management’s chief economist, Torsten Slok, anticipates stronger-than-expected US economic growth, while Bank of America recommends the American Industrial Renaissance ETF, focused on small to mid-cap US companies in infrastructure and manufacturing. This shift reflects a broader trend away from the dominance of big tech stocks, which have experienced significant drawdowns. Investors are gaining confidence that economic growth and markets will be driven by a wider range of sectors.
BCA Research’s Marko Papic highlights Trump’s plan to push mortgage rates lower by directing government-controlled mortgage providers to purchase mortgage-backed securities. This strategy aims to encourage households to borrow against their home equity, potentially boosting economic growth. While this could exacerbate inequality, Papic argues that the resulting economic stimulus could offset recessionary concerns, potentially extending the current economic cycle.
