WeeklyWatch – The world reacts to a Trump presidency

12^th November 2024

Stock Take

A new president is chosen

The next US Federal Reserve rate-setting would usually dominate the attention of the markets, but last week, only one news story captured the attention of investors.

After a closely contested campaign full of controversial moments and political twists and turns, Donald Trump emerged as the victor – also marking one of the most astonishing political resurgences. Trump becomes the oldest person ever to be elected as president, the second president in history to serve non-consecutive terms and the first to have a criminal conviction – and is indicted on further charges.

Trump’s immediate impact

On Wednesday, Wall Street opened at a new record high, this was partially out of relief that the result was uncontested. The dollar recorded its largest one-day gain in over two years as the result became more certain, feeding expectation that under Trump’s presidency, it’ll be strengthened.

The new president plans to cut taxes and raise tariffs, which is likely to cause higher inflation and growth. For the Fed, this will mean that they’ll need to keep interest rates high in order to stop the economy from overheating.

More highs were seen on Wednesday in the US bond yields, which increased significantly. Investors predict that Trump’s administration will look to borrow more money, which will demand a higher return for their money as a result.

Unexpected financial results

In the earlier part of the week, it was revealed that activity in the US services sector increased to more than a two-year high across the month of October. This information was added to further evidence that the US economy is stronger than expected. Some investors have consequently questioned whether the Fed have miscalculated when it began its easing cycle, making a large 50-basis point rate cut in September.

In the conclusion of their two-day meeting, the Fed announced a more conservative 25-basis point cut in interest rates on Thursday. Chairman Jerome Powell stated that it was too early to predict how the new Trump administration’s agenda will impact the US economy and how the Fed will or should respond.

After the Fed’s news, Wall Street continued its march as investors mulled over the prospect of further tax cuts, looser regulation and trade tariffs. By the end of the week, the S&P 500 had increased by more than 4%, far surpassing 6,000 points to record its largest weekly gain of the year.

Global change under Trump

Could the new president halt the UK’s economic growth plans? It’s been suggested by the National Institute of Economic and Social Research that the UK could be one of the countries most affected by Trump’s proposed financial changes. The large increase in trade tariffs could have a big impact on the UK’s economic growth, with investors predicting that it will slow to 0.4% in 2025, far down from its original forecast of 1.2%.

The Bank of England (BoE) acknowledged that the Budget will cause an increase in inflation and went ahead with its expected interest rate cut from 5% to 4.75% but indicated that rates could take longer to fall again. Inflation fell below the 2% target in September, but most have expected to see it rise again. The BoE has consequently pushed back their expectation for inflation to drop back to target from mid-2026 to mid-2027.

Rate cuts on both sides of the Atlantic

Future rate cut expectations are being widely postponed or scaled back for both the UK and the US after recent events and changes. Until Trump’s plans are clarified, the Fed will have to tread carefully. And until the dust settles on Labour’s Budget, the BoE must proceed with caution.

Ramifications for China

Under Trump’s protectionist policies, China could be facing significant challenges. The spotlight has been on the nation’s exports bearing responsibility for its struggling economy. Data from last week revealed that they were growing at their quickest rate in over two years as factories hurried their goods out of fear of more tariffs from the US and European Union.

China’s top export market is the US; it’s worth more than $500 billion a year. However, Trump wants to focus efforts on boosting manufacturing in the US and, as a result, proposed tariffs of 60% or more on Chinese goods.

Furthermore, on Friday, a local government debt package was announced by China as an attempt to stabilise the economy, detracting from the need to boost growth. Market mood dampened as a result.

As investors begin to reflect on the US election results, the Group Chief Investment Officer at Schroders, Johanna Kyrkland, predicts a soft landing for the US economy but identifies that the main risks are on trade and the impact of a protective stance on growth outside the US. She says:

“We expect the Chinese authorities to continue with measures to offset this. Europe becomes more of a concern, however, as it could then become caught in the crosshairs of a more hostile trade environment – without the unified leadership required to tackle it.”

Germany slips back

While the world watched events unfold in Washington, Germany endured more political uncertainty. After Chancellor Olaf Scholz sacked Finance Minister Christian Lindner, the coalition government collapsed. As a result, Europe’s most prominent economy is drifting without direction at a time when growth has stalled and the EU nervously waits for the unfolding details of a Trump presidency – unchartered waters seem to be coming their way.

Wealth Check

Gaining a competitive advantage with strong staff well-being

The latest labour market outlook from the Chartered Institute of Personnel and Development shows a trend dubbed ‘The Big Stay’, with employees opting to stay put at work.¹ For a business leader, this may appear positive, but employees may stay at their workplace for reasons that resonate more with disengagement rather than loyalty to the business.

Studies by AXA and CEBR suggest that employees are becoming increasingly disengaged, burning out and facing more stress and mental health challenges. At 23.3 million sick days a year, the absence rate is higher than it’s been for a decade, underlining the need for organisations to prioritise well-being.²

What does it mean to ensure employee well-being and why is it important?

Employee well-being encompasses the financial, physical and mental health of your team. When businesses make this a priority, they’re likely to see employees with increased satisfaction and motivation, positively boost workplace culture and ensure better retention of staff.

Small businesses often feel the pinch of this, as they often lack time and money to invest in well-being initiatives despite recognising the benefits. For example, with the average employee absence at 7.8 days per year, businesses must consider if they can afford the impact of prolonged absences.¹

Two top tips on how to support employee well-being

1. Well-being initiatives should aim to meet your employees’ needs. This can include a variety of measures, including help with the increasing cost of living, adaptable and flexible working arrangements, mental health support or providing access to a financial adviser. By having an open line of communication with employees, employers can determine what matters most and can act accordingly to ensure that the business can prioritise and act on these needs and make the most impact.
2. It’s becoming increasingly challenging for people to separate their personal and work lives. Managers must do what they can to understand these issues – being open with employees creates a caring environment in which employees are more likely to feel comfortable and share their concerns. Supporting employees isn’t purely financial, arrangements such as flexible working hours could make a big difference.

How does financial advice support employee well-being?

The cost-of-living crisis is impacting the vast majority of households up and down the country. As a result, financial well-being has become a strong priority in many businesses. Financial advisers can assist workers in managing debt, investments and their plans for retirement. But this shouldn’t be used to pressure employees; financial situations are often a delicate matter, and they may wish to manage their finances privately.

If you’re interested in how financial advice can benefit you and employees at your company, get in touch with us. We’re ready and able to advise and support businesses at every stage.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Sources

¹Chartered Institute of Personnel and Development, 12 October 2023 (survey in over 900 organisations covering 6.5 million employees).

²AXA UK & Centre of Economic and Business Research, accessed 29 March 2023.

The Last Word

“I want to thank the American people for the extraordinary honour of being elected your 47^th president and your 45^th president. And to every citizen, I will fight for you, for your family and your future.”

– Donald Trump, thanking voters as he prepares to step into the role of America’s 47^th president in January 2025.

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SJP approved 11/11/2024