Last week's big event was not the Federal Reserve meeting, nor even China's trillion-yuan stimulus plan to help its economy: it was the US election, which, as Polymarket's betting odds predicted, Donald Trump won.
The markets reacted positively, pushing indices to new all-time highs. This optimism is fueled by Trump's campaign promises, including tax cuts for businesses and individuals and maximum deregulation.
The former also means that companies will have more cash available for buybacks, which has been a key driver of growth in recent years, especially for giants such as Apple, Alphabet, and Nvidia.
As a result, the stock market could continue to receive an additional $1 trillion in liquidity each year. It could support the market if this plays out, even if it doesn't lead to explosive growth.
Some companies have already seen significant gains under the new presidency. Notably, Tesla stock soared 32% last week, closing at $321.22 per share and surpassing a $1 trillion valuation. However, this surge seems less tied to Trump's economic agenda and more related to the strong ties between Trump and Elon Musk — a story that continues to unfold.
In addition, he spoke of focusing on boosting economic growth, supporting U.S. manufacturers, and stimulating exports. How much of this will be accomplished remains to be seen.
In the meantime, it is worth noting that the U.S. economy is holding up better than expected. Most recently, the U.S. services sector grew in October, reaching its highest level in two years.
Unemployment remains at 4.1%, although new jobs added were only 12,000 (September: +223,000; expectations: +106,000). Overall, we are seeing economic stability as we enter the fourth quarter.
One other point to add: according to Bloomberg estimates, the extension of the Tax Cuts and Jobs Act promised by Trump could provide an additional 0.5% economic growth in 2025-2026.
And finally, if he succeeds in easing geopolitical tensions, especially in Ukraine and the Middle East, it would lessen market uncertainty, especially for commodities, fueling greater optimism about the future.
After all, big money loves silence and stability...
As for potential risks, much depends on Trump himself. If he imposes heavy tariffs on imports, it could boost inflation, forcing the Fed to halt its rate-cutting plans, perhaps as early as December.
Moreover, such protectionism would likely provoke retaliation, especially from countries like China and the EU, which could impose similar countermeasures on U.S. goods and services.
The point is simple: the first reaction is not evidence of a long-term trend. Things can change quickly and drastically, so it's essential to keep your finger on the pulse and follow developments.