The Republican candidate has pledged to impose significant customs duties on imports, including up to 60% on Chinese products.
However, Brent Puff, vice president and senior portfolio manager at American Century Investments, believes that in reality the approach will be more moderate.
“My personal view is that whatever policies are ultimately implemented on the trade front will be less extreme compared to the policies he articulated as a candidate. “That doesn’t mean we’re not going to put more tariffs in place, I think there will be some, but I think they’ll follow a more moderate course of action.”
The portfolio manager, who expects Trump to win a “very close election,” noted that as president, Trump would seek to negotiate better terms with some U.S. trading partners and create incentives to encourage American manufacturers to maintain their production in the country.
On the economy as a whole, Puff predicts that a Trump victory would trigger a reflationary revival of the economy, triggering a “risk appetite” response in financial markets, procyclical sectors such as manufacturing, finance and discretionary consumption are probably experiencing a first shock. positive reaction.
Puff noted that a Trump victory would likely result in a rotation away from longer-duration growth assets, such as technology, and more defensive sectors, like consumer staples and utilities, while the yield of 10-year bonds would continue to drift upward, resulting in a “slightly steeper” yield curve.
Considering the opposite scenario, he said Republicans would likely win the Senate whether or not Kamala Harris wins the presidency.
“Power will essentially be shared between conservatives and Democrats and I think, for the most part, the markets will interpret that as sort of a victory for the status quo. I would expect this to generate much less reaction in the financial markets.
Market reaction
Puff emphasized that while markets may react abruptly in the short term, the real question is how they will respond in the long term.
“I think what we’re likely to see over the next 12 to 18 months is greater participation from all segments of the market,” he said.
“I think the technological prospects [sector] continues to be good, but other segments of the market that are more dependent on the overall health of the real economy should start to participate and benefit a little more from the trends that are likely to emerge over the next 12 to 18 month.
This period will likely be marked by a decline in interest rates as well as an improvement in economic activity.
Commenting on international stock markets, Puff predicted that the expected results of the US election would play out similarly abroad, as markets outside the US view Trump and conservatives as “reflationary”.
“I think in general markets around the world will see this as something that will probably lead to a little bit more inflation and a little bit higher interest rates.”
Magnificent Seven
According to Puff, the vast majority of the Magnificent Seven, with the exception of Apple and Tesla, “will experience very healthy growth in their core businesses as the outlook continues to be favorable” under Trump’s presidency.
He pointed out, however, that one of the defining characteristics of U.S. stock markets is the concentration of returns in a very small subset of the market, represented by these companies.
Meanwhile, the rest of the market, which is more dependent on growth in the real economy, has struggled amid slowing global economic activity.
“I think that as inflation continues to decline and interest rates fall, the outlook for global economic activity will stabilize and begin to reaccelerate,” Puff explained.
“I think these conditions are prerequisites for the rest of the market to be able to participate more in the equity markets and I would expect a broadening of participation in the markets as growth improves, because the part of Markets that are more dependent on the real underlying economy will improve over the next 18 months.
