The 2024 election is now finally over. Donald Trump will be the next President of the United States and it appears that the Republican party will have control of both houses in Congress. Perhaps you noticed the massive and instant stock market rally the day after the election. Goldman Sachs has some views looking forward here — both on what effect Trump will have on stocks and on his likely tariffs that are coming down the pipe.
As a reminder, Goldman Sachs caters only to institutional investors and high net worth individual investors. The firm also recently warned that equity investors might only be able to count on 3% returns from stocks each year for the coming decade.
WHY SUCH STRONG U.S. GAINS
Goldman Sachs noted that the stock surge was accompanied by a plunge in volatility as the election result was unexpectedly delivered the same night. The firm’s Brian Garrett, who is head of Equity Execution on the Cross Asset Sales desk in Global Banking & Markets at Goldman Sachs (that’s a mouthful), noted that prior elections have taken days or longer to play out and the massive decline in volatility (VIX) was one of the largest one-day drops in the last decade.
Several issues drove such strong gains on Wednesday:
- many clients had reduced risk ahead of time amid election uncertainty
- investors have since re-engaged some of the trades that were successful after the 2016 election was known
- they bought financials, small caps, technology, and energy stocks.
U.S. VERSUS THE WORLD
One key issue for investors who look anywhere for gains (strategic investors, that’s you!) is that the U.S. rally was almost a solo-rally as European stocks sold off the day after the US election. Clients are focusing on potential ramifications of U.S. tariffs coming back into play and how they will impact economic growth.
European equity indexes, as well as in China and emerging markets, can be very sensitive to trade restrictions. As such, Goldman Sachs has also lowered its forecast for European GDP growth to reflect trade uncertainty and tariffs. Goldman Sachs also noted that U.S. stocks are typically less volatile relative to the broader stock market to changes in world trade.
MORE ON TARIFFS
Goldman Sachs also addressed tariffs. While they are usually seen as inflationary, commodities like oil and copper declined as so many commodities are priced globally in U.S. dollars. If the dollar rises, those dollar-denominated commodities tend to drop in price.
Another issue on commodities is that tariffs may act as a headwind for economic growth in China. After all, China is a massive consumer of commodities. Goldman Sachs also warned that Trump’s policy proposals include tariffs across the board on imported goods.
DISCLAIMER
All views and opinions in this report were issued by individuals working for Goldman Sachs in the Insights for economics and markets. Oggonomics has not issued formal price targets and formal ratings on the markets, indexes and commodities mentioned herein.
