The Trump economy. How big? How beautiful?

Katie Martin (0:09)

The people of America have spoken loudly, and their choice is very, very clear. They want Donald Trump as their next president. So, high tariffs and mass deportations are the nation's explicit choice of economic policy, possibly with a little executive branch influence over interest rates to boot. That smells pretty inflationary from here. So today on the show, we're going to make some economic and market predictions that we hope will not make us look silly in a few months' time. And if they do, we'll just deny this podcast ever happened. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a market economist at FT HQ in the relatively calm, serene London. Join down the line from New York City by the Unhedged newsletter crew, Captain Robert Armstrong and first able deckhand Aiden Reiter. Listeners, as a reminder, if you get confused, I'm the one with the English accent, Aiden is the young and clever one, and Rob is Rob. Guys, how's it going?

Robert Armstrong (1:12)

It's going well. I'm not one of these people who gets all emotional about presidential elections.

Aiden Reiter (1:20)

New York is very eerie right now. It's like something's not right, but nobody's changing their behavior.

Katie Martin (1:27)

Let me tell you what is right. The good ship USA got this election done and dusted nice and quickly this time.

Robert Armstrong (1:35)

No, it was good. I think that is a huge relief. Regardless of what you think about the person who won and the person who lost, man, the decision was clear. It was clear quickly. The system worked. No fuss, no muss.

Aiden Reiter (1:49)

Yeah. In the pundit square of when there would have been huge upset, if Harris had won, all of Trump supporters would have thrown a fit.

If Trump had won the Electoral College but not the Popular Vote, Harris' voters would have thrown a fit. This was like the only outcome where everything is calm, I guess.

Katie Martin (2:06)

Yeah. This is clear as day. And so, you know, Rob and I, we chatted about this actually the other day on the pod about how markets just don't like these kind of, I don't know what's going on kind of situations. They like this kind of certainty. So just that is enough to add a certain amount to the stock market. But then also, let's just have a quick kind of rattle through what markets have done since Donald Trump got re-elected.

Robert Armstrong (2:29)

So that's yesterday. What happened yesterday? S&P 500 was up 2.5%.

The Russell, which is small caps, was up six. That's broadly, as expected, Trump wants to cut-

Katie Martin (2:39)

That's a lot.

Robert Armstrong (2:40)

Yeah.

Katie Martin (2:41)

Stocks like this.

Robert Armstrong (2:42)

Trump wants to cut corporate taxes in America. And if that happens, earnings go up, and so stock prices should rise. And it explains the difference between the small caps and the big caps. The Russell 2000 rose so much because they're more domestically focused. So more of their revenue will be taxed at this lower rate we are currently imagining is going to become the corporate rate.

Aiden Reiter (3:05)

Yeah. And there are certain sectors of stocks that did particularly well. So bank stocks soared, particularly Capital One and Discover because their merger seems to potentially go through in the Trump administration. The Fannie Mae and Freddie Mac stocks, so stocks that theoretically Trump wants to give the profits back to shareholders also jumped. And then dollar stores did really poorly.

Robert Armstrong (3:27)

They import Chinese crap. And the Chinese tat tax, as you might call it in the UK.

Katie Martin (3:36)

The crap tariff.

Robert Armstrong (3:37)

The crap tariff is set to go up.

Aiden Reiter (3:40)

Yeah. And home builders did terribly.

Robert Armstrong (3:41)

Home builders did terribly.

Aiden Reiter (3:42)

Because mortgages are probably going to go up if you get inflation.

Katie Martin (3:46)

Well, that brings me on to my next point, which is what we've had in addition to a really good day in the stock market. I refuse to talk about Bitcoin, but I'll just briefly note that it hit a record high. Trump likes crypto, whatever. This stuff doesn't matter. But what we've also had is a really decent jump in the dollar and a big jump in bond yields, right? So bond prices have gone down, the yields have gone up. That is because the market thinks that Trump is inflationary. So my question to you guys is, is Trump inflationary?

Robert Armstrong (4:17)

I would frame the question slightly differently. There's one point.