Traditional Republican values of small government and free-trade promotion were jettisoned by Trump at this election and the electorate seems to have responded, along with a vote against immigration and policy continuity. The Democratic party shuffled slightly to the left in response in an attempt to address these concerns. But it has clearly not convinced the electorate with its more marginal policy shifts. Some traditional Democrat voter groups seem to have shifted to the Trump version of Republicanism, and the Democrat party will need to shift in Trump’s/Sanders’ direction more forcefully to win back these voters at the next election. This political change is not a one-off. We do not now return to “normal”.

A Trump victory represents a vote for change, but exactly what is unsure

Like the Brexit vote, we see this vote as a vote against something – the same old policies – rather than a vote for something. This is a protest vote without a clear definition of what the alternative is. We heard from both candidates policy promises, but there are few hard facts. We don’t know that either of them really intended to follow through with campaign promises once elected. And we can’t say whether Congress will enable policies to be implemented fully, or partially. But it will be easier for Trump to implement policies with a clean sweep of Congress than it would have been for Clinton, even if she had taken the Senate.

Markets hate uncertainty, and the near term represents a period of heightened risk aversion

Risk assets, such as equities, and currencies such as the Mexican peso are already facing heavy selling pressure following this election result. Treasury yields have fallen by more than 10bp. We anticipate that these trends will persist until some more policy clarity is forthcoming – most likely not until Trump actually takes office next year – though we will likely get more rhetoric before then. The main concern for financial markets is not tax and spending policy, but trade policy. An aggressively protectionist Trump could spell a global trade war, with very damaging consequences for risk assets and global growth. The chances of a December rate hike from the Fed have substantially diminished in response to this election result.

A sea-change in political outlook – and not just in the US

What is very clear is that although we now know who the next President of the United States is, we still have only a very patchy idea of the scale of policies that will follow. Whether markets eventually warm to Trump, or maintain their risk aversion will only become clear in the months and quarters ahead.

The Trump victory is another example of a rejection of the establishment. But it is not a uniquely US phenomenon as the Brexit vote in the UK showed. In the coming quarters, political events in Europe may show populist politics of various hues to have an even broader appeal – perhaps given a boost by this and the Brexit decision.

The driving factors underlying this change in attitudes and political support include income and wealth inequality, antipathy to free trade and immigration and a greater willingness to support the economy through expansionary fiscal policy. We could sum this up as a generalised rejection of “more of the same”. We’re certainly not going to get that from President Trump.

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