The recent US presidential election has given Donald Trump a clear mandate. With the Republican party securing a majority in both the Senate and the House of Representatives, the prospects of delivering a substantial policy agenda have improved considerably. Tax and spending cuts, deregulation, tighter border security, and a more aggressive posture on global trade are all on the table.
How might these policies shape the investment landscape for Australian investors over the next four years?
Why US Presidential Elections Matter for Australian Portfolios
In the immediate aftermath of the election, markets reacted sharply. US Treasury bond yields rose as traders scaled back expectations for Federal Reserve rate cuts. Equities moved higher, and the US dollar strengthened. These moves had already been building in the weeks before the result, what markets were calling the “Trump Trade”, as investors began pricing in the increasing probability of a Republican win.
The equity rally reflected optimism about corporate tax cuts and deregulation. The bond yield increase reflected concerns about fiscal expansion and its inflationary potential. Federal Reserve Chair Jerome Powell confirmed the election outcome would not affect near-term Fed policy, which helped temper volatility in the immediate term.
It is worth keeping in mind that politicians make a lot of promises during election campaigns, and not all of them become policy. We don’t speculate about future government choices. What we can do is consider the range of plausible outcomes and what they might mean for a well-structured portfolio.
Trump has also announced significant tariffs on trading partners including Canada, Mexico and China. For a closer look at how those tariff announcements specifically affect Australian investors, read How Trump’s Tariffs Could Impact Financial Markets.
A Stronger US Dollar and What It Means for Australian Investors
One of the clearest and most immediate effects of the election result was a significant strengthening of the US dollar. For Australian investors, this has a few implications worth understanding.
For those holding unhedged international investments, particularly US equities, a rising US dollar is actually beneficial. When US assets are converted back into Australian dollars, they are worth more. This is one reason international equities can perform well in Australian dollar terms even during periods of domestic market softness.
However, a stronger US dollar also tends to put pressure on commodity prices, which are denominated in US dollars globally. When the dollar rises, commodities like iron ore and copper become more expensive in the local currencies of importing nations, which can dampen demand. For Australia, with its significant commodity export base, that is a secondary effect worth watching over the course of the presidency.
For investors in or approaching retirement, currency exposure is not just background noise. It is a genuine portfolio consideration, particularly for those drawing income from internationally invested assets.
Tax Cuts, Deregulation and the Outlook for US Equities
The Trump platform includes significant corporate tax cuts and a broad deregulation agenda, particularly across financial services, energy, and manufacturing. Both are generally viewed as positive for US equities in the near term.
Lower corporate taxes lift after-tax earnings directly. Reduced regulatory burden lowers compliance costs and can improve margins across a wide range of sectors. Markets moved higher immediately following the election result because they were pricing in exactly this kind of pro-business environment.
For Australian investors, US equities often form a meaningful portion of internationally diversified portfolios, including inside superannuation. A sustained period of US equity outperformance driven by tax and regulatory tailwinds can have a real effect on total portfolio returns.
The risk on the other side is that large fiscal deficits resulting from tax cuts could keep bond yields elevated, which creates a headwind for growth assets over the longer term. The relationship between fiscal policy and interest rates will be one of the key dynamics to watch throughout this presidency.
Climate and Energy Policy: A Shift in Direction
Trump has pledged to withdraw from the Paris Agreement again and to support fossil fuels over clean energy. This represents a meaningful shift in US climate policy, with implications for certain investment sectors.
In the near term, this could benefit traditional US energy companies in oil, gas, and coal, while creating uncertainty for clean energy and renewable infrastructure investments. The longer-term trajectory of the energy transition is unlikely to reverse, given that many of the economic forces driving it, including falling solar and battery costs and energy security concerns, exist independently of US policy. But near-term capital flows and sentiment in these sectors may shift.
For Australian investors with exposure to clean energy funds or global ESG strategies, it is worth understanding how those positions are constructed and how they may respond to a change in US policy direction.
Navigating Uncertainty as an Australian Investor
Every US presidential transition brings a degree of market uncertainty. What history consistently shows, however, is that the stock market has been positive over every four-year presidential period. The economy and the share market are not the same thing, and political noise does not reliably predict market performance.
A new US administration brings change. That change creates uncertainty for business, investors, and governments alike. But uncertainty is not the same as risk, and reacting to political headlines is rarely a sound investment strategy.
The best response is to stay disciplined in a diversified portfolio built to meet your goals. Unless your personal circumstances have changed, there is rarely a good reason to restructure your investments based on political outcomes.
If you would like to talk through how the current environment might affect your specific situation, speak to a financial adviser today.
Dr Steve Garth PhD, M.App.Fin., BSc., BA. is the Principal of Principia Investment Consultants and works with Capital Partners assisting with communications.
For nearly two decades, Steve played a key role in helping grow the Australian arm of a global asset manager. During his career, he managed Australian and global equity portfolios, managed the Asia Pacific trading team and for the last 10 years he managed the firm’s fixed interest strategies.
Steve received his PhD in Applied Mathematics from the Australian National University. He also holds a BSc in Mathematics and Physics, a BA with majors in History and Politics, a Master of Applied Finance.
