With the US general election now behind us, we’re sharing our thoughts and views on what has changed and, perhaps more importantly, what hasn’t.

At the time of writing, the Presidency and the Senate results have been declared Republican victories. The House of Representatives is still undecided, though it looks highly likely that Republicans will maintain their hold on the House – and, therefore, have control of the government. For the sake of simplicity and in keeping with the most likely outcome, let’s assume the Republicans sweep.

What a Trump Administration May Mean for the Economy

From an economic standpoint, we’d expect the Republican agenda, led by President-elect Donald Trump, to be expansionary (though this is far from a certainty). It’s fair to assume we will get an extension of the 2017 Tax Cuts and Jobs Act in short order. And while it’s possible to assume some additional cuts, one need not assume broader cuts and aggressively expansionary spending to believe that the administration’s policy will be supportive of growth.

One feature of Trump’s first Presidency was deregulation. Given his campaign rhetoric and the fact that much of this can be done by executive order, we expect this push to again be a prominent feature. The combination of deregulation, tax cuts, and simply a Republican government is likely to support sentiment in the private sector.

We should also expect that the Trump administration will make use of tariffs in his second term. Not only because they were featured throughout his first term, but again, because of his strong campaign rhetoric around the issue and the fact that much can be done by executive order. While this may well be growth negative, it’s fair to wonder if he’ll attempt to use them as a tool to incentivize fixed investment in manufacturing in the US. Again, this could end up being pro-growth if investment materializes.

On the flip side, it’s possible that many of Trump’s policies could end up biasing inflation higher. This, in turn, could quickly become a headwind to economic growth. Consider that the labor market remains fairly tight. Any effort to curtail immigration, let alone deport some percentage of the population that is in the country illegally, could put upward pressure on wages. Though a one-time hit, tariffs are also likely to be inflationary. Finally, expansionary fiscal policy alongside an economy already running at above trend growth rates could further exacerbate inflationary pressures. These dynamics could help to put a floor under yields, contributing to financial tightening and potentially even forcing the Fed to change course on its easing cycle.

The inflation point is an important one and warrants a bit more attention. One of the key drivers of the scale of the Republican victory was the inflation seen during much of Biden’s presidency. Republicans are likely well aware of this, and the desire to not see a resurgence in inflation could restrain some policy action, such as aggressive spending.

Our Market Outlook

For markets, what has not changed is that broad equity markets continue to be richly valued. In such an environment, we continue to place a strong emphasis on risk management. While the different economic scenarios we discussed above may play out, it’s also entirely possible that things progress in a different direction.

For example, tight financial conditions (driven by higher yields) could sow the seeds of economic weakness; alternatively, the equity market could collapse under its own weight in the face of the uncertainties associated with a Trump administration and weigh heavily on consumption, ultimately leading to economic weakness.

Given the starting point and range of outcomes, we continue to be committed to applying our time-tested strategies to uncover investment opportunities no matter the market backdrop. We are finding ample opportunities across sectors today.

We will note that statistically, the relationship between the party in power and market returns is very weak. To that point, the market was strong during both the Trump and Biden presidencies and the sectors that did well had more to do with fundamentals and the economic backdrop than politics. As such, we remain focused on bottom-up strategy fits and are not making any significant portfolio changes in reaction to the election.

This material contains the opinions of Manning & Napier Advisors, LLC, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.