Red Wave: Donald Trump has won, the GOP has flipped the Senate and could take the House too. And Trump has secured the popular vote, too, which is a huge mandate for his platform. But what is this? Trade and tariffs and taxation would be the 3ts of the Trump Trade, followed by deregulation. Immigration will also be a hot topic with important economic consequences. Bear in mind as a caveat that the House is still up for grabs and Trump had complete control of Congress last time and it didn’t mean he could do everything he said he world. 

I did predict this result yesterday: My bet is that Trump wins a lot more easily than the polls indicate and we get this wrapped up by breakfast tomorrow morning. 

There is relief in the market that this was clean and clear – no ambiguity about this result. We can also see some clear market reaction to the result – Russell 2k futuress surged +5% to highest in three years, Bitcoin rallied to an all-time high and the US dollar is bid up across the board whilst oil and gold fell. The usual axiom applies; markets dislike uncertainty and the risk of a contested election has gone. Markets like this. 

Despite fears that tariffs will hurt EU growth, European indices are on the front foot catching a ride with US futures on a strong play for equity markets on both sides of the pond. FTSE, CAC, DAX all +1% early doors. Gold has come back a bit with the dollar giving up some of its gains in EM and in G10 spaces…yields still firmer and more of a risk-on play – hard not to rally when Dow is up 1000pts…plus this is the first innings of a long game running into the inauguration. 

Big gainers in London include Ashtead, which is a straight US cyclical growth play – read across to the US small caps is clear. And then Ferrexpo – a Ukraine peace play.  In the US, equities are ripping higher on the Red Wave – Dow looks to open at a record, up more than 1,000pts, Russell 2K +5%  

Asian markets were higher except China with the Hang Seng –2% and mainland China marginally weaker – China is of course the play re tariffs but you have to think that a Trump win forces the hand of Beijing to unleash full QE. Nikkei rallied on weaker JPY. 

Stocks are probably less sensitive to the Trump Trade than the FX space and this has been borne out so far – a lot more orderly than 2016 – partly because Trump is known and partly because it was not a surprise. But we are seeing some notable pre-mkt moves in some stocks with direct exposure to Trump policy – eg COIN and GEO.  

Winners: Trump, Musk + Tesla, Polymarket, Bitcoin, USD, Industrials, financials, energy, small caps, anything with regulatory overhang and just generally US growth 

Losers: Democrats, pollsters, Rory Stewart, David Lammy, China, left-wing European governments, EM currencies, tariff-exposed stocks  

Treasury yields moved up with the 10yr to 4.473% and likely moving towards 4.5% as we start to get a feel for the reaction and what Trump does next and what the Fed does next too – so far seeing traders pare bets on Fed cuts next year and raising ECB rate cut bets as a flavour of the initial response. 

Early post-election FX moves striking to price in tariffs and trade wars… further to run in a GOP clean sweep scenario which looks more and more likely   

A strong Trump trade has sent the dollar firmer across the board with Sterling, Euro and Yen down 1-2% in early trade. The euro seems to be the clearest expression of tariff fears though.  

USDJPY above 154 to hit highest since late July  

EURUSD testing 1.07, weakest since June  

GBPUSD down but not quite broken last week’s Budget lows  

USDMXN surged to its highest since July ‘22 – evocative of the 2016 type move  

Gold down over 1% to $2,707, weakest since about three weeks – sharp move on higher yields and stronger dollar but ultimately if Trump policy is reflationary and deficits do go up then we think gold has further to the upside.  

Stocks markets so far like the clarity of the Trump win this morning and futures are pointing to a firm open.   

Commodities maybe on back foot with tariffs seen disruptive to global trade. 

We now look to our Republican Clean Sweep scenario  

A Republican ‘trifecta’ of securing the White House, Senate and House would result in repeal of some elements of the Inflation Reduction Act, more China tariffs, lower regulation, lower corporate taxes, extension of individual tax cuts and be broadly reflationary for the US economy. Indeed, Trump has flirted with ending income tax completely, using tariffs alone to fund the government. Although this seems unlikely, as the Republican-dominated Congress would be hard pressed to back it, I can imagine a scenario where an unfettered president Trump takes this radical, ultimate tax cut.   

This Republican clean sweep scenario ought to favour short Treasuries (The PTJ/Druckenmiller position), with yields likely rising and the curve steepening. The 10yr Treasury yield could break 5% by the end of the year. The recent decoupling in the 10yr from oil points to a clear Trump trade at work.    

Industrials, financials, energy and crypto would be among the most favoured sectors and US cyclicals doing well.  Anything exposed to China tariffs would likely be sold, with small caps and US MAGA domestic plays bought.  

Stocks to watch  

Those likely to face headwinds from tariffs include Five Below (FIVE), Best Buy Co (BBY), Yeti Holdings (YETI), Nike (NKE), Starbucks (SBUX) and Apple (AAPL).   

Defence stocks such as Lockheed Martin (LMT), are seen by many as winners from a Trump focus on military spending. One caveat to this thesis would be a potential peace deal in Ukraine, though the likes of Thales (THLLY) and other European defence manufacturers could benefit from Trump pushing EU nations to spend more on defence.   

Energy stocks could move, too. We know Trump is likely to be friendly to big oil and gas, potentially easing regulations and greenlighting LNG exports. This could benefit, for instance, New Fortress Energy (NFE), Cheniere Energy (LNG), Valero (VLO), among others. Oilfield services firms such as Haliburton (HAL) are set to benefit too, it would seem. Downside risks may rise for European majors like Total (TTE) and Shell (SHEL).   

Less obvious candidates may include Western Union (WU) – if Trump removes illegal aliens it would lower remittances ; or private prison group Geo (GEO), on the basis of more people in detention facilities.  GEO trades +30% pre-mkt. 

A Trump win could also result in Lina Khan leaving the FTC, which could spur more M&A activity and boost boutique advisory firms like Moelis (MC), PJT Partners (PJT), Evercore (EVR), and Houlihan Lokey (HLI). You could also therefore take a look at Kroger (KR), which is trying to buy Albertsons (ACI), or Capital One (COF) and its bid for Discovery (DFS).   

Bitcoin hit a record high – Coinbase (COIN) +13% pre-mkt to $219 tells its own story. MicroStrategy (MSTR) also about 13% higher in the pre-market. 

Among social media companies, Trump Media & Technology Group (DJT) is one to watch for obvious reasons. But elsewhere check how Trump treats Section 230, which protects sites like Meta and X from liability for the content posted by users. Any change could hurt the likes of Meta (META), Reddit (RDDT), or Snapchat (SNAP).   

Some other names that could benefit from a Red Wave include Sempra (SRE), Dow Chemical (DOW), 3M (MMM), SolarEdge Technologies (SEDG). 

Neil Wilson

Chief Market Analyst at Finalto

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