Last Updated: Thursday, November 7, 2024

No matter which candidates we voted for, there’s something we can all agree on — no more election commercials! That said, the election results may carry significant implications for investors. I’d like to share the insights from Juno’s Investment Committee and provide an update on what this means for our investment strategy.

The Election Result:

Prior to yesterday’s election, polls projected the race for the Presidency as a coin flip, the Senate race leaning slightly toward a Republican majority, and that Democrats were expected to retain a majority in the House of Representatives. Given the tight projections, and the fact that many recent elections have rarely gone as expected, we remained balanced across portfolios. We are focused on the longer term, and we did not overweight based on a particular outcome. This strategy proved prudent as, while there are races still to be decided in the House and Senate, it appears the Republican party will earn a sweep of the Presidency, Senate, and House—a result that surprised even political experts.

The Economic Implications:

Throughout his campaign, President-Elect Trump emphasized higher tariffs and lower taxes as part of his economic agenda. Tariffs will be used to protect American business interests; however, a high level of tariffs on foreign goods could lead to additional inflation. President-Elect Trump also intends to lower the corporate tax rate from 21% to 15%. This policy is supportive of economic growth, and some estimates suggest it could add 1.4% to GDP. However, economic growth may come at the expense of the federal deficit. JP Morgan estimates that debt-to-GDP levels will rise to 140% with lower taxes and similar spending. It is our view that no one in Washington is ready to address the deficit.

The Stock and Bond Market Implications:

The stock market’s initial reaction was positive, with major averages up +2%. In particular, the financial sector is outperforming market averages, as higher interest rates and less regulation tend to benefit the sector. Small-cap stocks, which are highly correlated to the economy, rallied sharply for similar reasons.

In the bond market, the reaction was more complicated. Solid economic data drove rates higher leading up to the election, a market indication that the Federal Reserve may not lower rates much further. The sharp 0.17% jump in the 10-year Treasury yield today reflects not only this previously reported strong economic backdrop but also the likelihood of higher inflation and debt levels. This reflects a belief that the Trump administration’s proposed tax policies will likely cause the federal deficit to grow. Combined with price increases from tariffs, investors believe that rates should now be higher to account for these implications.

Our portfolio allocations were strategically tilted towards financials and value stocks ahead of the election, and we believe these companies have an increased chance of continuing to rally into year-end. As always, we will continue to make tactical adjustments to portfolio allocations while maintaining our focus on long-term investment objectives.

If you have any questions or need further information, please don’t hesitate to reach out to us.