What could a second Trump presidency mean for Canadian institutional investors?

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Indeed, Nathan Hayes, a research consultant at Eckler Ltd., says institutional investors need to focus on their extended investment horizon and avoid decisions spurred by potential short-term volatility. He’s more focused on the broad forces that directly impact gross domestic product growth or unemployment compared to deciphering Trump’s policy movements.

“Looking at the [U.S.] economy and how things play out . . . we’ll take those numbers as they come in and if the situation changes where maybe the U.S. economy isn’t necessarily as strong for instance, or maybe active investment management in the U.S. isn’t doing as well then, we’ll take that information as it comes and ultimately make decisions.”

Riach says a Trump administration touting the use of tariffs could cause serious inflation issues for countries like Canada, given 75 per cent of Canadian exports go to the U.S. Victories in the two chambers of Congress are likely to give Trump’s economic agenda a runway for a complete rollout.

“What are the Federal Reserve and the Bank of Canada going to do if inflation reignites or doesn’t decelerate as much as everybody expected it to?”

Read: What could a Trump presidency mean for Canadian institutional investors?

He says it’s difficult to pin down Trump’s economic policy in the leadup to his second presidential term, but he expects tariffs to directly impact Canada’s economy. “I think both the Democrats and the Republicans had some protectionist leanings, but Mr. Trump’s been pretty vocal about slapping tariffs broadly on everybody and that could obviously hurt our exports and therefore hurt our [GDP] growth.”

A report from Amundi Asset Management leading up to the election said tariffs could increase risk around supply chains and inflation. During his campaign, Trump touted a protectionist approach for U.S. industry and has promised a 60 per cent tariff on all imports from China as well as a tariff on imports from all other countries of between 10 per cent and 20 per cent.

A report from RBC Capital Markets determined the elections will create a near-term uncertainty in the U.S. equity market and the potential for some short-term volatility. However, the bank’s analysts revealed the most important event for the U.S. equities market in 2024 will be getting past the elections to give companies and investors a better understanding of what’s ahead.

Eckler’s analysis of returns from the S&P 500 index going back to 1971 and culminating in June 2024 found returns during presidential election years have averaged 12.2 per cent with the average non-election year producing a 13 per cent return. Equity market volatility in the U.S. is impacted by presidential election cycles, particularly during elections resulting in a switch of the elected party, the online brief noted. However, any periods of volatility are often short-lived, suggesting equity markets are more likely to be affected during a pre-election uncertainty period.

Read: What U.S. election uncertainty means for institutional investors

Predicting Trump’s movements may be nearly impossible, Hayes says, but given his previous track record as president, there’s opportunities for Canadian institutional investors to expect a particular focus on tax cuts and trade policies.

“There could be some similarities between 2016 and the next four years. I think a lot of the very basic ideas and policies are probably very similar but ultimately, you also have to understand that the financial markets may react differently this time around than they did last time.”

Opportunities in emerging markets could also benefit from a Trump presidency, given the potential of supply-chain relocations driven by tariffs and a technological supremacy competition, said Amundi’s report.

According to research from New York Life Investments, there’s growing concerns about the future independence of the Federal Reserve under a new Trump presidency, since he’s already clashed with the central banking authority in the past and said he would let Federal Reserve Chair Jerome Powell finish his term in May 2026. Powell’s seat on the Fed board won’t expire until 2028.

Riach says it’s too early to tell what kind of influence Trump would exert on the Fed and any meaningful changes would still have to be reviewed by Congress.

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