What Trump means for your money

In the immediate wake of Donald Trump's election victory this week over Democratic rival Kamala Harris, U.S. company stocks soared and the dollar soared.

While markets expected a Republican victory, the decisive nature of the victory was welcomed by investors who had feared a prolonged fight.

As the dust settles, UK-based investors will now be wondering what Trump's victory could mean for their personal finances and investments.

“Donald Trump’s election victory gave an immediate boost to a broad range of investments,” said Dan Coatsworth, analyst at investment site AJ Bell. “In the long term, there is a lot to consider with the return of a Trump administration, and what worked for investors in the immediate aftermath of the election may not remain the winner.”

The election result sent shares of U.S. companies soaring to a record high on Wednesday, with the S&P 500 rising 2.5 percent, while the U.S. dollar index, which measures the currency against a group of others, posted its biggest daily gain since posted in September 2022.

Experts say Trump's promise to raise trade tariffs and cut taxes is expected to boost U.S. economic growth but also lead to a rise in the cost of goods and services. Such policies are likely to provide a boost to mid-sized and smaller U.S. stocks, whose fortunes are more closely tied to the U.S. economy. The Russell 2000 index of smaller companies rose more than the larger S&P 500 on Wednesday, rising about 6 percent.

For UK investors and consumers, the impact on sterling will be key. Late Wednesday afternoon, the pound was down 1.2 percent against the dollar at $1.29.

“A stronger dollar means it will become more expensive for British consumers to buy US goods and travel to the US will become more expensive,” said Andrew Hagger, founder of consumer site MoneyComms. “If the dollar continues to strengthen against sterling in the coming months, this could put upward pressure on UK interest rates and impact mortgage rates.”

Ben Yearsley, investment director at advisory firm Fairview Investing, points out that a stronger dollar means “many goods will become more expensive to purchase on a global scale,” noting that “gasoline is the obvious example.” Higher prices at the pumps would impact UK inflation, which in turn affects interest rates, he adds.

A stronger dollar would be positive news for multinational FTSE 100 companies that are listed in London but generate revenue in the U.S. currency, such as equipment rental company Ashtead and InterContinental Hotels Group.

“Big capital [UK] Stocks will welcome a stronger dollar,” said Evangelos Assimakos, investment manager at wealth firm Rathbones. “When we see a reversal[in the dollar]Smaller domestic companies in the UK should fare better in comparison.”

Trump's policies are likely to benefit some sectors – like financial and defense stocks – versus others.

Susannah Streeter, head of money and markets at investment site Hargreaves Lansdown, believes Trump's victory is positive for the industry due to the likely expansion of infrastructure development. UK-listed Ashtead could benefit as it supplies industrial and construction equipment to a variety of sectors and generates the majority of its revenue in the US.

Bank stocks exposed to the U.S. economy could do well if interest rates remain high for longer to combat inflation. “Barclays is one of the largest global investment banks and has a large US credit card business and therefore has the potential to make more money on loans in such an environment,” says Streeter. In general, US tax cuts and less regulation would support bank stocks.

Defense stocks are also likely to benefit from Trump's focus on NATO members increasing their defense spending – something he repeatedly called for during the campaign. This could be a boost for British companies such as Babcock, Serco Group and BAE Systems, as well as US companies such as Northrop Grumman and Booz Allen Hamilton.

Another focus is on technology. Trump has pledged to cut red tape, including an executive order from former President Joe Biden on artificial intelligence based on security standards. Elon Musk, who runs Tesla and SpaceX, could take on an advisory role focused on reducing government spending and regulation.

Shares of Tesla, which sells electric cars but is also considered a technology-focused company, rose nearly 15 percent on Wednesday. Bitcoin also rose more than 7 percent to an all-time high of $75,389 as Trump vowed to make the US the “world’s Bitcoin superpower.”

Stephen Yiu, manager of the Blue Whale fund, says the “Magnificent Seven” US tech stocks – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla – should react positively because Trump is “not a fan of regulation” and adds “Many antitrust regulations could now disappear.”

The Magnificent Seven are so big that they make up about a third of the S&P 500. Index trackers and exchange-traded funds, which also follow an index, are a cost-effective and efficient way for UK savers to invest in the S&P 500.

Analysts at Peel Hunt say Trump's “pro-growth” policies could benefit British tech companies like Sage, while a trade war could lead to more long-term demand for chipmaker Raspberry Pi's products as demand for Chinese-made chips falls.

For some asset classes, the impact of Trump's victory is less immediate. “Trump loves to use the slogan 'Drill, Baby, Drill,' and his election victory has given U.S. oil producers a spark in the stock market,” says AJ Bell's Coatsworth, pointing to Chevron and ExxonMobil. However, an increase in oil supply could weigh on oil prices.

The dollar-denominated gold price fell after the election result due to the appreciation of the US currency. However, a rise in inflation would erode the value of the dollar and could spur demand for gold as a means of wealth preservation.

“More government spending or more tax cuts would require more bond issuance, and this is where the characteristics of gold, which has a near-fixed supply as opposed to endlessly rising Treasury issuance, really come into play,” said Guy Foster, chief strategist at asset manager RBC Brewin Dolphin.

In response to Trump's appointment, bond prices also fell, causing U.S. Treasury yields to rise. Markets fear Trump could borrow more and increase the deficit. British government bonds followed suit.

Some analysts believe there could be a possible divergence in wealth between the US and UK over time: while the US deficit could rise, the UK's latest budget is expected to improve the deficit.

For investors who hold Chinese funds or stocks, Trump's tariff plans could spell trouble. “Many Chinese companies have made a lot of money selling goods to the US and are now facing the prospect of reduced margins once tariffs are taken into account,” says AJ Bell’s Coatsworth. “Europe could also be a loser from US tariffs.

“Those who receive the tariffs are not necessarily going to turn around the tariffs and do what they are told. They are likely to retaliate and that increases the risk of a serious trade war.”

Assimakos says that while there is still money to be made, investors need to be more aware of the political risk that China poses, noting that Chinese stocks could become more volatile.

Chinese stocks have already had a bumpy ride. Its performance in recent years had been weak until the Chinese government launched a huge stimulus package in September. However, analysts have recently noted increasing demand for emerging market funds (excluding China), partly due to geopolitical risks.

Could UK mortgage borrowers feel the impact? a Trump presidency? Disruptions to global supply chains and increased borrowing under the new government could boost inflation again. This, combined with the Labor government's spending plans, could mean rate cuts – following Thursday's cut to 4.75 per cent – come slower than expected.

So far, the market benchmarks for British interest rate expectations have not changed significantly following Trump's election victory. An alternative theory could emerge that Trump's trade policies would lead to a slowdown in the UK and Europe – prompting the BoE to cut interest rates more quickly.

Last week's British budget further complicates the picture. “We have two burdens. One of them is the election in the USA. And the other thing is the increased debt that you have here from the household,” says Simon Gammon, managing partner at mortgage broker Knight Frank Finance.

The BoE said on Thursday that the budget – which included £40 billion in tax rises and billions of pounds in additional borrowing and spending – was likely to increase inflation. “The Bank of England has indicated that the Budget means interest rates will continue to fall only gradually,” said Paul Dales, chief UK economist at consultancy Capital Economics.

Mortgage lenders already operate on very thin margins and compete fiercely for business. Recent market movements give them little room to cut rates further.

Two-year interest rate swaps – closely watched because of the proliferation of two-year fixed-rate mortgages – have stood at around 4.5 percent since the budget, up from 4.3 percent before and less than 4 percent in mid-September. Five-year swaps also rose, reaching 4.3 percent.

Banks that use such derivatives to hedge their interest rate risk typically pass on the increasing costs of these instruments to mortgage borrowers.

Gammon said the combination of the budget and US elections likely means lenders will have to raise some mortgage rates in the UK as early as next week. Overall, he doesn't expect a big increase in borrowing costs, but the most likely outcome over the longer term is that “mortgage rates actually decline very slowly.”

Additional reporting by Ian Smith