Criterion: More 'Trump Bumps' ahead? Or just a long, bumpy road?

In normal times, investors care much less about the outcome of elections than the commentariat think they do.

At best, investors applaud lukewarmly the democratic process no matter who wins – as long as the result is expected and the victor’s platform is ‘business as usual’ (such as UK Labour’s).

But these are not normal times. Unexpected results in countries including India, France and Brazil have unsettled markets and then there’s the market’s reaction to that assassination attempt.

One would think the near-fatal shooting of a POTUS candidate would roil markets, given the connotations of heightened civil and political unrest from an already shaky starting point.

Instead, Wall Street rallied almost 3 per cent over three days to record levels – a response dubbed the Trump Bump. At the same time, the bookies have Trump as a short-priced $1.33 favourite, while Joe Biden has blown out to $7.

Crypto also surged, which is apt given the Trump campaign – unlike the Biden camp – accepts Bitcoin as donations.

In truth, markets surging to record levels probably has more to do with growing expectations of an imminent Federal Reserve interest rates cut. Paradoxically, Trump’s manifesto poses inflationary risks – and thus the necessity – for the Fed to raise rates again.

Still, his policies such as tax cuts, deregulating the energy sector and winding back environmental protections are deemed to be business friendly. But building tariff walls and Mexican border walls will not benefit everyone and there will be business winners and losers.

After Trump was elected (unexpectedly) in 2016, Wall Street went on a 26 per cent romp over the next year and the Australian bourse went along for the ride.

Local broker Wilsons says much depends on the “sequencing” of his policy moves.

“If he runs with tax cuts first it could boost the economy in 2025, but if he runs first with sharp tariff hikes, immigration cuts and an attack on the Federal Reserve there could be a more negative initially,” the firm says.

“In 2017 he ran with the positives first to help shore up the economy, but this time around he may run with negatives first as there will be no constraint from the desire to win another election.”

(The US constitution limits presidents to two terms).

Australian investors got an indirect taste of Trumponomics last time around, with China’s tit-for-tat tariff increases, which wiped out wine imports to that market (much to the expense of our biggest wine producer, Treasury Wine Estates).

More than America’s, our economy will suffer if the Chinese manufacturing sectors slows and demand for our coal, iron ore and copper tumbles.

But the narrative gets complicated because commodities also tend to do well in times of high inflation.

Trump’s actions often differ from his words so actual outcomes are hard to predict.

For instance, the clean energy sector did well during his first presidency – a good sign for our embattled lithium producers even though the higher rates since then are unhelpful.

As Aussie investors ponder the likelihood of Trump Mark Two, they face a federal election to be fought on the battle lines of energy policy, immigration and the cost of living.

Beyond a handful of specific policy differences, the market’s reaction boils down to assumptions about managing the national budget and steering monetary policy.

Perhaps the biggest risk is the prospect of a minority government with no clear mandate. But good democracies – and markets – have a habit of bumbling through the political vicissitudes.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision.

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