Most economists and stock market participants expect President-elect Donald Trump will increase government spending. This will put the government deeper into debt. After the elections, long-term Treasury bonds fell sharply before rebounding.
Trades may use the 20+ Year Treasury Bond ETF (TLT) as a gauge for the market’s sentiment on government debt. Unusually, the Democrats spent heavily on defense and aerospace, along with student debt forgiveness. However, the U.S. voted for Trump expecting tax cuts for businesses and workers. Voters also expect more from social security. Additionally, the U.S. will protect its trade and local businesses by applying tariffs on imported goods.
International firms fared poorly last week. Automotive firms like Toyota (TM), Ford Motor (F), Hyundai (HYMTF), Honda (HMC), and BMW (BMWYY) are on a downtrend. Volkswagen (VWAGY) represents the troubles ahead for Europe. Markets anticipate the U.S. will drive harder trade deals with Europe.
Europe also faces substantial competition from its Chinese neighbor. China is determined to dominate the electric vehicle market. Companies like Xpeng (XPEV) and Zeekr (ZK) rallied last week, while Nio (NIO) and Li Auto (LI) traded lower.
Your Takeaway
Yields for the long-term government debt could rise in 2025. After the Fed cut rates by 25 bps, inflationary pressures may also hurt Treasury prices. Markets will expect the Fed to slow its pace of interest rate cuts.