Starting January 20th, Donald J. Trump is officially the 45th president of the United States. A colourful and provocative character, the businessman-turned-politician has generated headlines since the beginning of his campaign. But how will Trump’s term in office affect the global economy?
The Initial Scare
Democratic candidate Hillary Clinton was perceived as the frontrunner throughout the presidential race. On Wall Street, she was considered the favourable candidate, and whenever she pulled ahead in the polls, the market reacted positively. Therefore, it was no big surprise that when the official results were in, and Trump was declared the winner, Wall Street panicked, and the top indices crashed.
However, once the market settled, the negative trend reversed, screens turned green, the USD started climbing, and the leading indices started reaching new heights on a daily basis. A new period has begun, and optimism was high.
Let’s not forget that Trump is a Republican, and was considered a very successful businessman for decades. The upward trend that has been sweeping Wall Street could be attributed to the traditional Republican perception of keeping the government small, with little interference in the economy, which Trump will most likely uphold. Moreover, Trump made very strong promises, saying he will boost the American economy – and his background in business might have given more validity to these claims once he got elected.
So far, the market is booming, so-much-so that the media dubbed the phenomenon “Trumponomics.” Leading indices NASDAQ and S&P 500 are showing steady gains, and the Dow Jones is flirting with 20,000 points for the first time in history.
South by South-East
When it comes to Mexico, the economy of America’s closest neighbour to the south has already taken a blow from Trump’s win. Every time Trump strengthened in the polls before the elections, the peso would lose steadily against the dollar – and even more so after he won. Moreover, ever since he was elected, Trump has been consistently taking jabs at companies who have a presence in Mexico.
Following a meeting with Alibaba’s Jack Ma, the two said they will work to increase the Chinese eCommerce giant’s presence in the U.S., supposedly creating one million new jobs – although details of how this will be done were not made public.
The Tweet That Moves Markets
Generally, social media has been Trump’s weapon of choice in recent years, and on several occasions, he has been able to influence the economy with 140 characters or less.
It is no secret that Trump says what’s on his mind, and rarely filters his thoughts. However, when you combine his outspoken nature with million of followers on Twitter, and him now in the most powerful position on the planet – that gives him an ability to cause dramatic changes in the global economy. For example, when Toyota said it will build a Corolla factory in Mexico, Trump used his Twitter account to say that he will impose specific taxes on the car makers if it tries to export cars to the U.S. from Mexico. Whenever Trump tweeted his opinion, or intended actions, regarding a carmaker’s intention to manufacture in Mexico, that company’s stock would go down.
Another example of Trump’s power on the social network is when he criticised Lockheed Martin’s F-35 jet, calling it overpriced, and saying he had asked Boeing to manufacture a rival plane. That tweet sent Lockheed’s stock price crashing, shedding 2%, and caused Boeing shares to rise 1%. In fact, Trump’s influence via Twitter has been so prominent, that calls for his banning from the social network have become quite common.
To Summarise: The Trump Era Has Begun
Alongside the Brexit vote, Trump’s election will be remembered as the most economically influential event of 2016. With 2017 upon us, the effects of Trumponomics are already very present in the market and are here to stay (for at least four years). The American economy is already adjusting to the new reality, and major financial bodies are already making adjustments. The Federal Reserve, for example, has raised rates in December, and will probably raise them at least once more this year.
Traders who wish to benefit from Trump’s presidency should pay close attention to his announcements regarding the U.S. market, his reforms and planned courses of action, but perhaps, most of all – his Twitter account. With the Brexit vote putting a lot of pressure on the European and British economies (and the Euro and GBP respectively), Wall Street and the U.S. appear to have a stabler foundation in the coming years, which should present some interesting opportunities for investors, both in the short, and long run.