We expect a pro-growth economic agenda will be pushed forward with the Republicans retaking control of the Presidency and the Senate. While the House is too close to call at this time, the Republicans are now favoured to win a narrow House majority.

As a reminder, our comments below are focused on the economic implications of a Trump led Republican government. It is important to separate economic and market outcomes with Trump’s domestic, social, and foreign policies.

Key Takeaways:

• Trump’s second term may lead to an extension of his tax cuts, likely increasing federal deficits while simultaneously enhancing corporate earnings growth and current valuation multiples.
• Potential tariffs on Canadian exports are an unknown, along with the fate of the U.S.–Mexico–Canada Agreement (USMCA) ahead of the 2026 review. However, further tariffs on Chinese and European goods are more likely and could raise inflation in the U.S.
• The reduction of regulations might positively impact industries such as Banking, Energy, Pharma and Tech. However, it could introduce risks for clean energy and electric vehicles.
• Trump will aim to maximize U.S. oil and gas drilling, a policy strategy that all but ensures the country will continue to be the world's top petroleum producer.
• Changes in U.S. policies could lead to increased market fluctuations; however, investors should stay committed to their long-term investment objectives and financial plans.

Heading into the Election, our portfolio positioning was tilted for a positive U.S. growth environment:

• More U.S. equity exposure than Canadian or international equity exposure, with a focus on U.S. Mid-Cap companies that are expected to benefit from continued economic growth and more trade protectionist policies.
• Little interest rate risk or duration risk in our fixed income or bond holdings as inflationary pressures could re-emerge with tariffs imposed and growing debt and deficits.
• Meaningful U.S. Dollar exposure as we expect widening economic and interest rate differentials between Canada and the U.S.

Market Opportunities & Asset Allocation Thoughts:

• A Trump presidency is expected to lead to higher inflation, economic growth and a stronger U.S. Dollar. In turn, the U.S. Federal Reserve may need to keep interest rates elevated to prevent the economy from overheating, which could further strengthen the U.S. Dollar.
• U.S. economic growth will maintain strength relative to other developed countries. Corporate tax cuts and deregulation are big tailwinds. As such, we continue to favour U.S. Mid-Cap equities given the valuation discounts, domestic manufacturing and supply chains, and higher percentage of domestic revenue.
• Our Canadian equity exposure is well positioned as a significant amount of revenue (on average) is earned in the U.S. The weaker Canadian Dollar also helps many businesses that have a positive translation of U.S. Dollar revenue and where cost structures are in Canadian Dollars.
• We are assessing our international equities, particularly European multinational businesses with the anticipated tariffs imposed on goods exported to the U.S.
• Our fixed income exposure is focused in short and intermediate term bonds with a maturity profile of one to five years, most of which are Canadian and U.S. issuers.
• While Canadian and U.S. bond yields have reacted similarly immediately following the election, we expect the Bank of Canada will continue to cut interest rates more aggressively relative to the Federal Reserve in the U.S., which will benefit short-term Canadian bonds.
• We continue to favour non-investment grade and private credit strategies. Strong economic conditions in the U.S. will keep credit defaults low, making this an attractive risk and return opportunity.

A second term for Donald Trump could bring factors that may cause short-term market volatility as his administration introduces or modifies economic and fiscal policies. Investors should consider the potential for short-term market fluctuations and remain focused on their long-term investment strategies.