Welcome to our post U.S. election coverage recording this the morning after the election. And let's just begin with the observation that this was an awfully eventful election campaign, in the sense that there was a large ideological and policy divide between the two candidates. We didn't even stick with the same two candidates throughout the race. And so, of course, Democratic candidate and President Biden stepped aside for Vice President Harris partway through.

There were multiple assassination attempts. Betting markets swung back and forth, and there were moments in which Trump was the prohibitive favorite in the summer. There were moments when Harris was a substantial favorite in September and then more recently, the odds had swung back to Trump as well. In terms of the outcome, well, I think that's well appreciated at this point.

American voters have spoken, and Donald Trump will be the American president from 2025 to 2028. His win was fairly resounding. We could see hints of it as soon as the Florida results were becoming clear, and he was running well ahead of what the polls had suggested, and ultimately that mapped onto most other states as well. And so this was an election outcome that became clear within hours, as opposed to within days, which is what it took in 2020.

It appears as though Trump may also have won the popular vote, which is something that Republican winners don't always do. And the swing states, the majority, if not all, have gone toward Trump as opposed to Harris. A Trump victory and a fairly resounding one at that. Trump was the favorite. It should be noted for more than a month going into this, but not overwhelming.

It was in the realm of about a 60% chance. But ultimately, those, those odds did tilt in the right direction. And as much as markets had partially priced this in and we'd seen stocks rallying and so on in the month leading up to this outcome, I wouldn't say it was fully priced in. And I'll speak about that in a bit more detail in a moment, just to mention Congress.

There were other races, congressional races, both with regard to the Senate and the House of Representatives. Republicans have outperformed there as well. So the down ballot has tilted in a right leaning direction. The Senate appears to have been flipped from the Democrats to the Republicans with at least two additional seats of some prominence picked up.

The House of Representatives is the one thing that isn't certain. As I'm recording this, it looks likely that it has been held by the Republicans. Not quite settled. I'm seeing betting markets that assign about a 90% chance the Republicans pick it up, but I won't say that it's quite completely settled. We will work with the assumption, though, that it is then a Republican sweep of the white House and House of Representatives and Senate, and in terms of the implications of that, well, you know, does in theory unlock more fiscal support, it's easier just to do things and to spend money or to cut taxes and so on.

If Congress is at least theoretically supportive of the president, it does then suggest all else equal slightly larger deficits and otherwise, as opposed to smaller versus a divided Congress. I will also say the risk of a, debt ceiling problem or a government shutdown would also seemingly risk to the extent that you have the same party in control of the major, levers of political power.

Historically, Republican sweeps have been fairly positive for the stock market. Though it's fair also to acknowledge and to make a counter point that markets have generally not minded checks and balances when there have been, each party controlling some part of Congress. And so I wouldn't say it's a cut and dry affair, but nevertheless, markets likely fairly, pleased, of the Republican sweep, in terms of the implications of a Trump win.

Well, I'm going to stick to my knitting and focus on the economy and a little bit on financial markets. Obviously, there are implications that extend well beyond that as well, but that's outside of my jurisdiction. There's room for debate over the economic and market implications. Not everyone agrees as to which of the various Trump proposals are likely to happen and so on.

For our part, I'll say that we're not assuming, that Trump does everything that he's talked about on the campaign trail. Just to give you a sense, we're not anticipating large scale deportations in the US. We're not anticipating the full set of of threatened Trump tariffs to be implemented. We're not convinced as an example that there will be a blanket 10% tariff on the world.

We're not convinced that the Federal Reserve or the civil service will be sharply undermined, though I'm sure there will be efforts to make changes there. And, let's keep in mind, just in terms of what might, to prevent some of the more exotic proposals from being enacted, do keep in mind Congress, does not want many of those things.

Trump's many business supporters don't want those sorts of things. Trump is famously sensitive to the stock market, into the economy and the economy and stock market probably wouldn't want those things either. So we're not looking for the more extreme proposals to be implemented. We do have some historical precedent in the context of a Trump win.

Keep in mind, he was already president from 2017 to 2020, by the way, Congress was also a Republican sweep for the first two years of that term. It's a very similar setup over that period of time. The economy did grow. Over that period of time, the stock market did manage to rise. There are new questions, to be sure.

You could argue that he has surrounded himself with more competent and ideologically aligned people who might be more capable of imposing change this time than last time. So there are some differences, but it's not a completely unfamiliar setup in terms of the economic implications specifically. So the election result, first of all, does resolve an important amount of economic uncertainty.

We had seen, in particular, small business uncertainty was extremely high. So we can imagine that that should decline to some extent. And just that by itself is a helpful thing, though it would have been helpful as well to resolve that uncertainty in either direction. Truth be told, we have viewed and we do view Trump as he's slightly more economically supportive of the two candidates.

Lots of debate and lots of uncertainty around that. But that's where we've ultimately landed. We see negatives, to be sure. The prospect of somewhat higher tariffs do constitute an economic narrative. Negative. Pardon me. We do see immigration being curtailed more substantially on the Trump side. And that's also an economic negative. Trump will likely have less government spending than a Harris, than a Harris presidency.

Similarly, a small drag there, too. But we do see positives that largely neutralize or roughly offset, those negatives. And so, deregulation do stand to be an economic positive, friendlier policy toward the oil sector is also something that could prove economically supportive, tax cuts, in part, the maintenance of prior tax cuts, but possibly some additional tax cuts are also potentially economically supportive.

And then, just the general notion of animal spirits. And when you look at surveys, a lot of business leaders prefer the Republican outcome and view that as being the better outcome for their, their sector. Whether that's true or not, I think there's some psychological effect that could also benefit to. Not to say that there's a big economic tailwind coming.

We're actually not expecting that. We didn't think either candidate had a massively stimulative platform. We don't think that the deficit leaps higher here. We're not looking for a big jump in economic growth. But we think it is a platform that on the net is perhaps slightly supportive of the economy at a minimum doesn't impose a drag.

And there was a risk of that, perhaps under, Harris presidency, in terms of the rest of the world, that was the U.S. economic story just briefly on the rest of the world. Probably a bit worse, though, and so do keep in mind, of course, higher tariffs are directed at the rest of the world. And those tariffs, can hurt economically.

US tax cuts do render other countries a little bit less competitive in comparison. And you've likely added some geopolitical uncertainty here. That geopolitical uncertainty also affects, of course, other countries in some cases obliging them to increase their military budget, sort of change how they operate in some cases, of course, affecting countries very directly in a military context, themselves.

The rest of the world likely less enthusiastic from an economic standpoint. So I will say it's interesting that overseas markets, looking at the stock market overnight, are mostly up not to the extent of the US, but it's not as though it's this diametric opposite with the rest of the world, seeing that their stock markets fall so that that is a bit of food for thought on the inflation side.

We've been of the view and we still think that Trump is a slightly, inflationary, outcome in the context of tariffs that are inflationary. They add to the cost of things in the context of an economy that might move a bit more quickly than it might have under the alternative. That could be slightly inflationary, though I would emphasize that, of course, friendlier oil policy and the greater ability perhaps to drill for oil could actually be slightly deflationary.

But on the net we are budgeting for slightly higher inflation. That could just be resolved via central banks that don't cut rates quite as much. You might end up with, with the same amount of inflation but slightly higher rate, so that there's a bit of a trade off between those two variables. But that's, that's roughly, the outcome and the expectation for inflation and then pivoting to financial markets.

Well, I think the Trump trade has been pretty clear now for a number of months. And so it has been and remains a higher stock market, higher bond yields, and a stronger U.S. dollar. Even though Trump would prefer a weaker dollar. That's not the way markets are taking it. And we saw exactly that last night. In fact, that was one of the reasons we felt pretty sure, last evening that Trump was going to win.

Watching how many of these markets were behaving, we can debate as to what should happen with these financial variables. It's clear how the market is interpreting it. I wouldn't want to fight against that, at least in the short term, unless we saw policy that started to substantially diverge from that, that form of thinking, we're of the view that there may be some further room for these initial market trends to run based on historical post-election trends.

It does tend to last more than the 24 hours, say, after an election on the stock market side. So you're Trump is stock market positive. Certainly U.S. stock market positive. We've seen the S&P 500 rise by about 2% overnight. So that's certainly consistent with that view in terms of why I just you do understand how much markets care about taxes and regulations.

Trump is proposing to reduce regulations. He is proposing to cut taxes. Also proposing to make life easier for oil companies. And so that combination is stock market positive. And that's precisely what we're seeing in terms of sectors that benefit the most. And this is me wading slightly out of my depth here. But nevertheless, I think you could say financials, energy and industrials are some of the more obvious winning sectors on the bond market side.

Well bond yields are up as one would have theoretically expected. We've seen about an 18 basis point selloff in the U.S. ten year yield overnight. And so that's on the basis of the economy moving a little bit faster. It's on the basis of the assumption that if Trump is the more generous and economic candidate in the short run, there could be slightly larger deficits that need to be serviced.

Higher yields on that basis, and then similarly tariffs, to the extent their inflationary can add a bit to nominal yields as well. Yields are ultimately higher. We do still expect the fed to cut rates later this week. And I was just reconfirming that with markets. Market expectations still pretty firmly in place for a 25 basis point cut on Thursday, there were scenarios in which either election uncertainty or unexpected outcomes could have created, problems in markets that might have demanded some sort of liquidity response from the fed.

I'm not seeing that right now. And so I don't think that's a realistic concern or a realistic expectation in terms of what's next for markets. Well, again, the markets could run somewhat further in this direction. Historically, it hasn't just been a one day affair. Often you see that trend persisting over the span of a few weeks. Even. And so we may yet continue to see that.

I think there is a scenario in which markets could eventually find themselves having overreacted, so there could be room to push back later. I'm not sure if that's the exact moment right now. Though we do expect higher than normal volatility, in the coming months and possibly beyond. There's just uncertainty as to exactly what the policy will look like, even though we have somewhat more sense than we did yesterday.

But it should be emphasized volatility and volatility expectations are already materially diminished. And so you know, the VIX as an example has fallen significantly overnight. So just knowing who won is half the battle. The other half will be to get a sense for the actual policy that gets delivered. Trump will take office on January 20th. So that is still a few months away.

We can expect a flurry of actions almost immediately, particularly in places that don't require legislation. So tariffs and foreign relations are areas that the president has significant purview and doesn't have to wait for Congress to get in gear. There are also significant questions there. We expect partial tariffs, but not full tariffs. We think there will be some shifts in foreign relations.

We don't think it will be quite as extreme as some, fear, but there is some uncertainty. So we're all going to learn some things over the next few months. I will mention one thing, which is just that, in the last year, there was a very important U.S. Supreme Court ruling called the Chevron ruling. And it does limit the ability of presidents and government agencies to sort of ram through things that aren't clearly articulated in legislation historically.

It's been left to those entities to read between the lines. And when there's ambiguity and legislation to decide how to implement border controls and things like this, and there's actually significantly less wiggle room now, for presidents and agencies to do that, there is more jurisdiction in the courts, and there may be more court challenges to efforts. And so that could somewhat incrementally reduce the ability of Trump or any president, to ram through things without legislative support.

We're getting close to the finish here. Stepping back, let's just take a look at the big picture here, which is, you know, let's not forget markets do tend to go up over time. That's that. Stock markets I'm referring to. They've done so historically under both Democratic and Republican administrations. And to a remarkably similar degree. It should be added.

We are long term investors. We invest over the span of multiple election cycles, and presidents are temporary. And so any policy that's a bad idea has every opportunity to be unwound in the future. Policies that are good ideas are more likely to be kept by future presidents. And over our investment time horizon, then I wouldn't say we can look right through every single policy, but nevertheless, we can work with the assumption that some of the less desirable policies are likely to be temporary.

I would also emphasize there are plenty of other things that matter and should matter to investors beyond election outcomes. Historically, elections aren't the dominant driver of markets. Other obvious considerations. And this is me as an economist, clearly wearing an economist hat. But, whether we pull off this soft landing, it's looking pretty good. That's actually a tailwind for the moment.

Whether inflation continues to settle, we think that's more likely than not, though. It's a little bit trickier now under a Trump administration given some inflation risks there. Whether central banks can continue to cut it looks like it could be a reasonably familiar trajectory, but maybe a little bit less rate cutting. It might be a good guess as to the end point.

And for that matter, much of our investing is based on how corporations do, and some of that is influenced by policy, but most of it is actually influenced by simply their own innovation and their own decision making. So, in conclusion, certainly a consequential election. We have the results sooner than we might have. Donald Trump, of course, has won.

There are implications for the economy. There are implications for markets as well as discussed. It's not the only thing that matters. We are going to learn more in the coming days and in the coming months. As to the exact policy outlook, and stay tuned for more. So thanks so much for your time.