The surprisingly resounding victory of Donald Trump and the Republican party in the 7 November US election has had a bigger positive impact on US equities than on equity markets elsewhere (see Exhibit 1).
European and emerging market indices have in fact fallen as many investors worry about the impact of US import tariffs on economic growth and profits in those regions.
That same focus on tariffs may explain why it has been the US small-cap Russell 2000 index that has done the best among the major US markets this month. Higher barriers – and hence higher costs – of imports into the US could encourage local consumers to purchase domestically made goods.
It has not been a straight line upwards, however, as markets wobbled when US Treasury bond yields rose. Stronger growth and higher inflation may well result in higher bond yields, which could be a challenge for equity markets.
