What are the implications of Trump’s win for your portfolio? The economy? Real estate?
It’s been less than a day, but there’s no shortage of change. Here are a few things to bear in mind as we all deal with a new reality. As you know, what Trump says doesn’t necessarily translate into what he does. But the guardrails are off. He controls the red party. It will control the Oval Office, the Senate the House (likely) and the Supremes. It’s an uncharted sea.
Why are US stocks surging?
All American markets coursed higher on the news, first in futures trade, then after the opening bell. The gains pushed the Dow ahead (as of now) 1,300 points and took the S&P 500 to yet another record.
It’s not euphoria about Trump, but anticipation of (as promised by him) a massive drop in corporate taxes, a gutting of costly regulations and climate change initiatives, unfettered drilling and an America-first protectionist agenda. Besides, there will be billionaires and industrialists now in the cabinet. They will act in self-interest, presumably. Mr. Market is rubbing his tummy in expectation. Up she goes.
Why are bonds retreating?
Yields shot higher on the Trump news, while bond prices fell. Borrowing costs jumped dramatically as the benchmark 30-year Treasury flipped to 4.66% after the biggest one-day increase since the pandemic.
The market is pricing in a surge in long-term inflation once Trump policies are enacted, resulting in higher deficits, more debt and higher consumer prices. Tariffs increase producer and retail prices, and feed the CPI. Lower corporate taxes and the elimination of tax on tips, social security payments and overtime will reduce revenues.
Says BMO this morning: “An analysis by the Committee for a Responsible Federal Budget estimates that could increase the Federal deficit by $5.35 trillion over ten years. Trump has also proposed exempting overtime and tip income from taxes, ending taxation of social security benefits, repealing the $10,000 cap on state and local tax deductions, and lowering the corporate tax rate to 15% from the current 21%. All told, Trump’s tax cuts and proposed spending increases could add over $10 trillion to the federal deficit over ten years. To help offset at least some of these costs, Trump has proposed a 10% universal baseline tariff on all imports with a 60% tariff on imports coming from China that could help to raise an additional $2.7 trillion in tax revenue. All told, it is estimated the Federal debt held by the public could rise to 142% of GDP by 2035 compared to 125% of GDP under current law.”
Why is Bitcoin romping?
Trump has pledged his support to cryptocurrency. He has embraced crypto advocate Elon Musk, who has launched his own digital currency. Bitcoin is seen by many as a hedge against volatility (which is ironic), central bank control and the future of the global reserve currency. Trump is unpredictable. Anything can happen.
What’s the impact on interest rates?
The Fed cut of a quarter point will proceed this week. Another will likely come in December. But the odds are higher the CB will slow its easing, as US federal finances tilt towards more deficit, debt and tariff-induced inflation. That’s why bond yields popped.
Trump policies – lower taxes, less regulation, possible mass deportations, larger deficits – will add fiscal stimulus. In the short term this should throw gas on the economy, then result in heightened inflation. The Fed will respond with caution, unwilling to add even more stimulus through lower rates. They may, in fact, rise – unless the president seeks to influence the central bank or replace its chair. Entirely possible.
What does it mean for Canada?
The US dollar gained strength on the protectionist, America-first and growth-oriented presidential agenda. So the loonie fell (along with the Mexican peso). The Bank of Canada needs to cut more to keep us out of recession, but this will widen the gap with American rates and further weaken the dollar. That makes imports more expensive and adds to our inflation.
Canada’s main export is oil, and it’s taken a price dive (3%) because of Trump and the stronger US dollar. ‘Drill, baby, drill’ is the new American mantra, which should increase production and lead to lower prices. Not so good for Alberta. But if the Keystone XL pipeline is revived as environmental concerns are set aside, that would benefit us.
The main threat is tariffs. Trump said he wants a global 10% placed on all US imports. Then he suggested 20%. Plus 60% for Chinese goods. If Canada falls under this umbrella, Scotiabank warns we will see recession here. Meanwhile the Canada-US-Mexico free trade pact comes up for renegotiation in 2026. Bad timing.
Canada, says economist Doug Porter, “could be one of the hardest hit from a possible trade tussle. Increased uncertainty about tariffs and the fate of the USMCA ahead of the 2026 review could depress capital flows to Canada and weaken domestic investment, likely extending the nation’s productivity slump. Suffice to say, none of this is good for the Canadian dollar, which is already challenged by faster rising unit labour costs relative to the U.S.”
What does it mean for our real estate?
Murky and unknown. Interest rates here will likely continue to ease, which is positive for housing markets, but a tariff-induced recession would have the opposite effect. If the US slashes corporate taxes, Ottawa may have to follow suit in order to stay competitive. This will exacerbate our deficit problems and further constrain the Bank of Canada.
In the short-term, Trump octane will feed American growth, and benefit Canada which is dependent upon it. After that, who the hell knows?
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