Look out for these personal finance pain points in the U.S. election aftermath

The rally for stocks and crypto following Donald Trump’s U.S. election win is a head fake that diverts attention from several investing and personal finance pain points ahead.

Mr. Trump was seen as better for stocks than Democratic candidate Kamala Harris, and he’s thought to be a booster of crypto currency. The S&P 500 and several cryptocurrencies surged in morning trading on Wednesday, but signs of trouble were there if you looked for them in the bond market.

Investors sold U.S. Treasury bonds, which has the effect of making bond yields rise. Why we care about bond yields in the United States: They have a big influence on bonds here in Canada and, in turn, on the cost of mortgages.

Mortgage rates are well off their recent peaks, but still well above the level where many homeowners locked in several years ago. Waves of these homeowners will renew mortgages in the next 12 months, and they have to be wondering how much more they’ll be required to pay. Events in the bond market suggest further mortgage rate cuts aren’t imminent, a point worth noting if you’re on the housing market sidelines waiting for lower borrowing costs.

Stocks rise and fall on expectations for corporate profits, while bonds are dependent on how investors view economic prospects, including inflation. Mr. Trump’s plan to introduce tariffs on imports is considered inflationary because it will increase the cost of imported goods, while also potentially slowing growth.

Something else investors worry about is the creditworthiness of bond issuers, an area where the United States is generating concern through its US$35-trillion debt. Neither Mr. Trump nor Ms. Harris focused on government debts and deficits in the election campaign, but his policies were judged as adding more to overall debt levels. There’s justifiable concern about Canadian government’s finances, but the U.S. is in worse shape.

Without attention to government debt in the United States, it’s possible that bond yields could rise from current levels. The Bank of Canada and U.S. Federal Reserve will keep lowering their benchmark interest rates, which in turn will push down rates for variable-rate mortgages, lines of credit and floating-rate loans. But bond yields are a bigger influence on fixed-rate mortgages, which happen to be a popular pick right now.

A takeaway for homeowners from these developments is that variable-rate mortgages are worth a look. If you go variable, each Bank of Canada rate cut – and there are several expected over the remainder of this year and next – will lower your borrowing costs.

Another post-election pain point is the Canadian dollar, which has dropped to 71.9 US cents as of Wednesday morning from 74.2 US cents in late September. Part of the reason for that is that money flows are drawn to the higher interest rates in the United States. A five-year Canada bond had a yield of 3.1 per cent early Wednesday, while a comparable U.S. Treasury bond had a yield of 4.3 per cent.

But Canada’s lack of economic competitiveness also contributes to its dollar weakness. If a Trump government offers tax cuts to business and removes regulations, then we may see additional downward pressure on the dollar. Now seems a good time to buy some U.S. currency if you plan to head south this winter.

Stocks had a great run Wednesday morning on the Trump win, but the comparative returns for the U.S. and Canadian markets suggests another pain point. The S&P 500 was up 1.7 per cent by late morning, while the S&P/TSX composite index was up just 0.3 per cent.

In addition to being seen as friendly for business, Mr. Trump is also regarded as someone who will have policies favouring the mega-size tech companies that are dominant in the S&P 500 and non-existent in the S&P/TSX composite.

The Canadian market has benefited lately from a rebound in blue-chip dividend stocks, but that was driven by the decline in interest rates on bonds. Sticky bond yields could limit near-term gains for dividend stocks.

The rally in the price of bitcoin, ethereum, dogecoin and other cryptocurrencies was a win for investors holding these speculative assets. But if you’re a traditioal investor or money manager who has avoided them, prepare for FOMO, or fear of missing out. Crypto remains a non-essential portfolio holding, but has the potential to move beyond that if it becomes more widely adopted.

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