(Bloomberg) -- Donald Trump’s return to the White House is adding fresh ammo to a decade-long investment strategy that echoes his “Make America Great Again” mantra in a replay of the 2016 playbook.
The America-first trade — buying up assets that win when the US outperforms the rest of the world — got a powerful boost Wednesday on bets the Republican victor is set to unleash polices that will spur domestic growth and insulate the world’s largest economy from overseas competition.
A cohort of investors are cheering on the prospect that tax cuts will be a boon for business — big and small — while tariffs may fuel a manufacturing renaissance at home and favor American workers. An exchange-traded fund tracking the S&P 500 (ticker SPY) climbed 2.5%, in contrast to a 1.4% loss for an ETF (IEFA) investing in developed-country equities more broadly. The divergence was last on display in 2016, the year when Trump notched his first presidential victory.
“This is a power trade on steroids,” said David Rosenberg, founder and president of Rosenberg Research, referring to the risk-on rally in favor of US assets.
A pair of ETFs representing made-in-America investment themes are on the tear. The First Trust RBA American Industrial Renaissance ETF (ticker AIRR) climbed 8%, while the Tema American Reshoring ETF (RSHO) added 6%. Both hit record highs.
With Trump’s disruptive protectionist agenda in focus, stocks in emerging markets sank, trailing their American counterparts by the most in two years.
The specter of faster economic growth, and potentially higher inflation, under Trump’s return fueled a spike in Treasury yields. Five-year Treasury yields added 13 basis points while comparable yields in Germany were down 9 basis points, marking a rare divergence since the German unification in the early 1990s, according to data compiled by Bloomberg columnist Cameron Crise.
Still, the billionaire businessman’s policies are not all positive for the domestic economy, at first blush. For instance, his proposed tariffs are projected to potentially hurt GDP and corporate earnings, while swelling a government deficit. Yet for now, investors are willing to give him the benefit of doubt — focusing instead on the potential benefit from business-friendly measures, such as deregulation and tax cuts. Indexes of small-cap stocks and regional banks, companies among most exposed to domestic growth, surged 6% and 13%, respectively.
The dollar strengthened against major currencies for its best day since September 2022. The stronger greenback put a halt on gold’s record-setting rally while weighing on oil and base metals, commodities typically seen as a proxy for the global economy.
The era of US supremacy began right after the 2008 financial crisis, when the Federal Reserve shifted to a rescue mode, helping sustain a prolonged economic expansion. The boom continued under Joe Biden’s presidency with American technology megacaps leading the stay-home trade during pandemic lockdowns and the artificial intelligence craze of late.
The America-first trade has coincided with a relatively strong economy, according to JPMorgan Chase & Co. strategists including Nikolaos Panigirtzoglou, noting that the imposed tariffs during Trump’s first term were followed by a stretch of faster growth in the US.
“Over the longer term the Trump win is likely to reinforce the so called US exceptionalism,” the strategists wrote in a note Wednesday. “With US tariffs potentially hitting the rest of the world earlier in the second Trump presidency, perhaps as soon as early next year, the current US economic outperformance could spill over into 2025.”
All told, the post-vote verdict is clear: The renewed US-centric equity rally shows investor faith in Trump, according to Phil Pecsok, chief investment officer of Anacapa Advisors.
“He uses tariffs as a bargaining chip and it works,” he said. “Most businesses appreciate less regulation and lower taxes and so I think you’re going to get a more favorable market with him as president.”
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