Five Observations on What We’ve Witnessed This Week

1. Not Even Close

The trauma from the 2020 election along with consistently tight polls established a widespread belief that this election would be close, likely requiring drawn-out recounts and subject to legal challenges. Instead, Trump achieved a resounding victory, sweeping the Democrats’ Blue Wall, capturing key demographics such as white women, and improving support among Latino and Black voters. This outcome came despite a Democratic campaign that significantly outspent its opponent (and any previous campaign, for that matter). We’ll leave it to the pundits to dissect the seismic shift to the right in America, but for now let’s retain the idea that Canada’s own visible shift to the right, well perceptible in recent polls, might also be underestimated. That could in turn shape the type of promises that will be bandied about in the upcoming election.

2. They Actually Fell for It

At the very least, polls were useful in highlighting voters' primary concerns. Democratic voters largely focused on issues like democracy, abortion rights and the makeup of the Supreme Court, whereas Republican voters prioritized the economy, immigration and national security. One of the more puzzling aspects of this election is the perception of the economy: despite the US economy's strong performance, a resilient job market and robust equity returns, inflation remains a powerful confidence killer. This is understandable, yet it’s perplexing that voters supported a candidate promising to solve nearly every economic challenge through tariffs and deportations—both of which are clearly inflationary. The same candidate claiming he’ll reduce grocery prices intends to impose tariffs on items like coffee, seafood, avocados and a range of other imported foods. While Trump’s appeal to non-college-educated voters is well documented, this outcome reflects a deeper mistrust of science and expertise that has been nurtured since at least 2016. That distrust has now fully matured, leaving disinformation and misinformation stamped all over this result.

3. Trump Bump, Part 2

The S&P 500 crossed the 6,000 mark, as Wall Street eagerly embraces an agenda of tax cuts, deregulation and policies friendly to both fossil fuels and cryptocurrency. In just three days, the stock market has achieved gains comparable to what took a full month in 2016. This follows one of the best years for US stocks since 2000 (graph). How long will the Trump rally last? Unlike in 2016, Trump’s protectionist agenda is now expected to be taken more seriously. His upcoming cabinet appointments will signal whether he prioritizes demonstrated competence or ideology. Trump’s protectionist stance now has far broader implications than the more targeted actions of his first term. For now, the market’s motto seems to be: “we’ll handle it when it comes.” But eventually, that reckoning will arrive, potentially bringing an end to the market honeymoon.

4. Bond Markets Are No Trump Loyalists

It’s not just that the US 10-year bond yield surged nearly 20 basis points on Wednesday; the broader context is that Treasuries have been selling off since mid-September, driven largely by the term premium. As we highlighted last week External link., the US government posted a $1.8 trillion deficit in 2024. In fact, the US has the largest primary budget deficit in the OECD, and both presidential candidates made it clear this issue isn’t going to be resolved soon. Amid this, Trump has floated radical ideas like abolishing income taxes altogether and paying off over $26 trillion in debt by “handing them a little crypto cheque.” We’ve seen bond market sell-offs elsewhere over far less reckless fiscal developments, and while it’s true the US often benefits from lower fiscal scrutiny, there are limits to how much investors will continue to write blank cheques for the vast debt issuance this implies—unless, of course, one seriously believes that the career aspiration of Elon Musk, the richest man on the planet, was to become an austerity czar all along. So, if equity investors were to get carried away and ignore the downside risks of Trump’s policies, bond markets could still bring them back to earth.

5. Canadian Diplomats: “Do Something”

Tariffs, threats (albeit shaky) to dismantle the Inflation Reduction Act and its incentives for renewable energy, electric vehicles batteries—which Canada has strategically aligned with—and deportations all pose upside risks to market interest rates. In short, Trump 2.0 could spell significant upheaval for the Canadian economy. Aside from an unrealistic hope of diversifying away from the US export market, there’s little in the way of economic policy advice to offer Canadian policymakers. The responsibility now falls to diplomats and lobbyists to leverage their networks and interpersonal skills to persuade the Trump administration to grant Canada preferential treatment and preserve the CUSMA. Unlike the current administration, Trump—who appears poised to withdraw from the Paris Agreement again—is unlikely to care much about Canada’s critical minerals. It may help that Canada toed the line on tariffs against Chinese EVs and committed to up its defence spending. It may also help that the US auto sector is heavily located in red states and gives jobs to a significant number of Trump supporters. Still, the task is both monumental and delicate, with much at stake for Canada.