"America First" sweeps Wall Street as 2016 strategy reappears in the market

The Zhitong Finance APP noted that Trump's return to the White House has given a strong boost to the "America First" trade on Wednesday, as the market bets that the next president will introduce policies to stimulate domestic growth and shield the world's largest economy from overseas competition.

A group of investors is excited about the prospects of tax cuts benefiting businesses, while tariffs may revive domestic manufacturing and benefit American workers. An exchange-traded fund tracking the S&P 500 index rose by 2.5%, while a broader ETF investing in developed market stocks fell by 1.4%. This divergence last occurred in 2016, the year Trump first won the presidential election.

David Rosenberg, founder and president of Rosenberg Research, stated regarding the increased risk appetite for U.S. assets: "This is a powerful trade."

Two ETFs representing the U.S. manufacturing investment theme performed well. The First Trust RBA U.S. Industrial Renaissance ETF rose by 8%, while the Tema U.S. Reshoring ETF increased by 6%. Both ETFs reached all-time highs.

As Trump's destructive protectionist agenda comes into focus, emerging market stocks fell, experiencing their largest decline in two years, lagging behind U.S. stocks.

Following Trump's return, expectations of accelerated economic growth and rising inflation drove U.S. Treasury yields to soar. Data showed that the five-year U.S. Treasury yield rose by 13 basis points, while the German five-year Treasury yield fell by 9 basis points, a rare divergence since the reunification of Germany in the early 1990s.

However, not all extreme policies are beneficial for the U.S. economy. For example, the proposed tariffs are expected to harm GDP and corporate earnings while increasing government deficits. But for now, investors are willing to believe in the potential benefits of pro-business measures such as deregulation and tax cuts. Small-cap stocks and regional bank indices surged by 6% and 13%, respectively, as these companies are among those most affected by domestic growth.

The U.S. dollar strengthened against major currencies, achieving its best single-day performance since September 2022. The strong dollar hindered gold's record rally while putting pressure on oil and base metals, which are typically seen as barometers of the global economy.

The era of U.S. hegemony began after the 2008 financial crisis when the Federal Reserve shifted to a rescue mode, helping to sustain a prolonged economic expansion. During Biden's presidency, the economic boom continues, with U.S. tech giants leading home trading during the pandemic lockdowns and the recent AI boom.

J.P. Morgan strategist Nikolaos Panigirtzoglou and others noted that "America First" trade aligns with a relatively strong economy. They pointed out that after tariffs were imposed during Trump's first term, the U.S. economy experienced a period of faster growth "In the long run, Trump's victory may reinforce the so-called American exceptionalism," the bank's strategist wrote in a report on Wednesday. "As U.S. tariffs may impact the rest of the world earlier during Trump's second term, perhaps as soon as early next year, the current strong performance of the U.S. economy may continue until 2025."

In summary, the post-vote conclusion is clear: Anacapa Advisors Chief Investment Officer Phil Pecsok stated that the renewed rise of the U.S.-centric stock market indicates that investors are confident in Trump.

"He uses tariffs as a bargaining chip, and it works very effectively," he said. "Most businesses prefer reduced regulation and lower taxes, so I believe that if he is elected president, the market will be more favorable."