On Wednesday, Republican candidate Donald Trump won the 2024 US presidential election. The investment team at Coutts, the bank behind our customers’ investments, including Royal Bank Invest, remains committed to prioritising economic fundamentals over any short-term political movements.

While political changes can cause temporary shifts in market sentiment, long-term performance is predominantly influenced by global macroeconomic factors. Coutts’ investment strategy aims to ensure that our customers’ investments are aligned with these fundamentals, regardless of political developments.

Given that Trump’s proposed tax reforms, deregulation plans and shifts in trade policies are likely to be actioned, initial market reactions have been varied. On Wednesday morning, S&P 500 futures (the expected price of the S&P 500 outside US trading hours) were positive and the US dollar strengthened given the corresponding rise in bond yields.

US government bond yields moved up, meaning prices fell, as markets reacted to the prospect of an expansionary Republican policy agenda. However, at this stage it is unclear whether any rise in yields will be longstanding, and it is unlikely to affect the US Federal Reserve’s (Fed) interest rate decision on Thursday.

Before the election, the Fed was widely expected to cut interest rates again. This is unlikely to change as a result of Trump’s election. However, the Fed’s roadmap for interest rate changes could be altered from Q2 next year once Trump has settled into Office and has more influence on economic and trade policy. 

In the days following the result, there may be a shift in investor sentiment as markets assess the impact, most notably in bond markets. However, historical data shows that markets typically calm as attention returns to economic fundamentals like GDP growth, inflation and corporate earnings.

Looking at US stock market data from the past 150 years, Coutts’ research* suggests that the political party in power—Republican or Democrat—has had minimal long-term impact on market returns when adjusted for inflation. Average annual US equity market returns over that time have been fairly consistent: 7.3% under Republicans and 7.6% under Democrats.

This reinforces their focus on maintaining long-term fundamentals rather than reacting to political events.

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs.

*Source: Coutts, Bloomberg. November 2024

Although the Republican administration's policies may influence market sentiment, the question of who is in control of Congress usually has a more significant impact on fiscal policy and economic outcomes. Congress is made up of two chambers: the Senate and House of Representatives. While the Republicans also won the majority in the Senate, it is still to be decided who will control the House of Representatives, and that could take some time. 

If the Republicans also win the House vote, they will have majority control of Congress, making it easier to enact policies. Therefore, pro-business policies such as tax cuts and deregulation are more likely to be introduced, potentially supporting economic growth.

David Broomfield, Multi-Asset Strategist at Coutts, said: “Our long-term strategy remains consistent regardless of the election result, and we maintain an overweight position in global equities which includes the US.  

“This reflects our view that, at this stage of the economic cycle, equities offer the best potential for growth, driven by solid fundamentals such as earnings growth and corporate profitability. Our focus is on ensuring that our investments capture these opportunities, independent of political developments.”

The US economy had already entered a slowdown phase prior to the election, reflecting moderate growth rather than a contraction. This environment, characterised by slower yet sustained growth, could still be supportive for ‘risk assets’ like equities as businesses continue to produce earnings growth, albeit at a more measured pace.

In line with Coutts’ investment strategy, we are overweight US equities and US dollar assets, capitalising on their growth potential in a maturing economic cycle. With the dollar strengthening, our allocation to US stocks in dollars means any potential positive returns could be greater once converted back into pounds.

Additionally, we are invested in a liquid alternatives fund that is uncorrelated with equities and bonds, offering effective diversification and risk management. These types of holdings help stabilise our funds and portfolios by exploiting diverse market opportunities. They aim to deliver uncorrelated returns to traditional assets during periods of volatility.

The investment team at Coutts takes a tactical approach which involves closely monitoring macroeconomic indicators, such as inflation and central bank actions, allowing them to adjust our funds and portfolios dynamically and ensure alignment with the evolving business cycle if necessary.

Our investments maintain a diversified allocation across global equities, bonds, and hedge funds to mitigate US-specific risks while capturing growth opportunities globally. This balanced approach helps ensure our funds are resilient and positioned to benefit from broader global economic dynamics, rather than the US alone. It is also designed to provide potential protection against any possible bond market volatility.

David explained: “Our disciplined, data-driven approach is integral to managing our customers’ investments effectively. History supports our view that long-term economic factors, such as corporate earnings and technological innovation, are more influential than immediate political developments.

“Through the principles of our investment strategy, we aim to ensure that our funds and portfolios are robust, flexible, and responsive to new opportunities and risks as they arise.”