Business Brief: A red wave and a sea of green

Good morning, this is Tim Shufelt subbing in for Chris Wilson-Smith. Today, we’ll be looking at how Donald Trump’s emphatic victory in the U.S. presidential election is resonating through global financial markets. More on that below. But first:

Today’s Headlines

For Canada’s steel and aluminum producers, the return of Donald Trump as U.S. president prompts uncertainty, fears of trade war.

To get a sense of the potential impact of Trump’s plans for sweeping tariffs, look no further than the Canada-U.S. softwood dispute.

A top Bank of Canada official says there’s “no free lunch” with the country’s new easier lending rules.

HAPPENING TODAY

• The U.S. Federal Reserve is expected to cut its policy interest rate by 25 basis points
• Vote counting continues in the race for control of the U.S. House of Representatives
• Lots of Canadian earnings scheduled for today, including BCE Inc., Canadian Tire Corp., Bombardier Inc., and TC Energy Corp.

Open this photo in gallery:

IN FOCUS

Gradually, then all at once

You may have heard it repeated a few hundred thousand times or so that the markets hate uncertainty. Well, the U.S. presidential election is sort of the mother of all uncertainties. It’s an exhausting and absurd spectacle that has held the financial world in its thrall for months. And after it all, we were led to expect a postelection-day limbo of vote recounts and legal challenges.

But in the end, clarity came swiftly. And the sudden absence of uncertainty jolted financial markets like a shot of adrenaline. Let’s look more closely at some of the moving parts.

U.S. stocks go boom

The U.S. stock market was awash in green in Wednesday’s trading, with the Dow Jones Industrial Average gaining 3.6 per cent on the day to close at a record high. That was the index’s best day in two years.

This financial rejoicing may strike some readers as backwards, especially those who consider Trump a threat to democracy, geopolitical stability, international trade, civil rights, human rights, women’s rights and basic human decency. Rest assured, the stock market doesn’t care about your feelings. It is a cold, dispassionate judge of corporate and economic fortunes, for good or ill. And the fact is, Trump’s agenda of deregulation and tax cuts will be warmly received by the corporate sector.

Investors also have Trump’s first term as a baseline. Over those four years, the S&P 500 index gained a little more than 50 per cent, or roughly 12 per cent a year on average, depending on which timeframe you use. Not bad, considering there was a global pandemic thrown in there, which saw the S&P 500 crash by more than 30 per cent.

Plus, Trump tends to view the stock market as a measure of the economy, and a bull market as a personal badge of honour. Questionable from a policy perspective, but for the stock market, probably a net positive.

Lots of losers in Trumpland

In moments like this, when stocks gap up or down because of some big shift in investor sentiment, the Canadian stock market typically follows America’s lead. Not so much this time around, so far.

Wednesday was decent for Canadian stocks, but had little of the exuberance seen stateside. That probably has something to do with the chaos that Trump tends to visit upon America’s trading partners. A second Trump administration will bring the return of aggressive America First policies. He has promised tariffs of 10 per cent to 20 per cent on all imports into the U.S. That’s trouble for Canada, which sends more than 70 per cent of its exports to the U.S.

After the red wave of Republican triumph coalesced on election day, the prospect of a trade war rippled through overseas stock markets. European indexes turned negative, with German stocks bearing the brunt. With an economy heavily reliant on free trade, Germany’s economy could easily tip into recession as a result of new U.S. tariffs, Eric Reguly writes.

Meanwhile, Trump’s return to the White House is the last thing China needs, as the country tries to recover from an economic slowdown and real estate crisis. And since Trump has threatened tariffs in excess of 60 per cent on Chinese imports, it’s clear why Chinese-linked stocks are tanking.

Don’t trust the Trump trade

The stock market has a way of getting ahead of itself. Consider an example: On Wednesday, the SPDR S&P Regional Banking ETF gained 13 per cent, presumably on the basis that Trump’s lighter regulatory touch would give smaller banks more leeway to maximize profits. There was a similar effect eight years ago. After Trump defeated Hillary Clinton, the same ETF gained 26 per cent through the end of the year in 2016.

So how did that trade pan out? The regional bank ETF gained just seven per cent during Trump’s presidency, trailing the broader stock market by a huge margin.

There are lots of pockets of the market making big gains in the wake of election day. But over the long haul, the stock market tends to do its own thing, regardless of party politics.

One of the moment’s biggest winners, however, is Tesla Inc. – a company for which it is impossible to separate the corporate from the political. Its share price rose by 15 per cent on Wednesday as a result of Elon Musk’s alignment with the president-elect. While Trump has previously dismissed electric vehicles as a “hoax” that will ruin the U.S. auto industry, he seemed to change his tune over the summer. Amazing what US$120-million in political donations will get you.

CHARTED

The gap in life expectancy between men and women could once potentially be explained by differences in things like smoking rates and labour force participation. But those gaps have largely closed and still, women live an average of 4.5 years longer than men in Canada. It seems like the answer must lie in biological differences, Frederick Vettese writes. The silver lining for men is that they probably don’t need to save as much for retirement as women. So live it up, fellas.

MORNING MARKETS

Global markets climbed as investors assessed what a second Donald Trump presidency might mean in the longer term, while all eyes were on the U.S. Federal Reserve, which is expected to cut interest rates today for the second time this year. Wall Street and TSX futures advance following yesterday’s big gains.

Overseas, the pan-European STOXX 600 was up 0.6 per cent in morning trading. Britain’s FTSE 100 slid 0.17 per cent, Germany’s DAX rose 1.3 per cent and France’s CAC 40 gained 0.54 per cent.

In Asia, Japan’s Nikkei closed 0.25 per cent lower, while Hong Kong’s Hang Seng advanced 2.02 per cent.

The Canadian dollar traded at 71.98 U.S. cents.