What does a new US President mean for your investment funds?

In line with the proclamations he made throughout the election cycle, President Trump got to work early, signing more executive orders on his first day than any other president in history. From announcing growth initiatives such as the Stargate AI infrastructure project, to igniting a seemingly never-ending tit-for-tat tariff war with his adversaries (and allies) - Trump has given the market plenty to digest, and valuations plenty to incorporate. Amongst all the noise, there emerges the necessity for calm. We’ll take this opportunity to inject some rationality into the current whirlpool of speculation.

What does a Trump presidency mean for investment markets?

Trump’s pro-business agenda is generally seen as expansionary and positive for company profits. His first term proved this, and the S&P 500 grew by 69.6% over the four years*. That statistic ranks fourth amongst presidential terms since the mid-1950s, bested only by Barack Obama’s first stint and both of Bill Clinton’s tenures*.

Although, Trump’s number is even more impressive when you consider that his campaign included the COVID crash in 2020. Trump frequently used the performance of the US stock market as a metric for the success of his presidential debut, and it’s true that at least a portion of the market’s growth can be attributed to his accommodative policymaking. His administration was keen on lower taxes and relaxed regulation. Little has changed in this regard, and while history rarely repeats, it does often rhyme. The market certainly revealed its opinion when it rallied in response to the election result in November. 

However, we must also be cognisant of the risks. Trump’s tax cuts are expected to increase the budget deficit, and coupling this with his tariff impositions raises inflationary concerns. Readers won’t need any reminder of how the stock market struggled under high levels of inflation in 2022. Moreover, while we have seen equity prices tick up since the election, we also witnessed long-term treasury yields initially rise. It remains to be seen whether this trend persists, but we should be mindful that higher bond yields make the premium on stocks less attractive, which dampens buying activity.

Additionally, Trump’s style of abrasive diplomacy has already placed the US on the edge of a trade war. This would likely hurt the sales of multinational corporations that are reliant on exports, while also making it more costly for them to import goods to maintain supply chains, compounding the impact on profit margins. Suffering profit margins would invariably lead to suffering share prices. 

While Trump has offered some early insights into his trade plans, the whole picture remains to be fully revealed. It is still too difficult to predict precisely which countries and sectors will be targeted by tariffs, or precisely how extensive the levies will be. In fact, it is difficult to predict which of Trump’s proposed policies will actually be implemented at all, and which are only being mooted as a negotiation tactic.

We saw an example of this recently when Trump announced tariffs on Canada and Mexico before immediately pausing them after negotiating heightened border security. This episode exemplified another characteristic of the 47th president - his tendency to move quickly on consequential issues. This could lead to higher levels of volatility during his reign as investors struggle to distinguish wheat from chaff. 

Market volatility should not be feared

But sensible investors should not be afraid of volatility in the short-term (and in the world of investments, four years is the short-term). It’s true, political developments can shock markets, and concern is duly warranted. However, the relationship is hardly ever linear, and in the long-term, stock fundamentals are still king.

Moreover, there are reasons to be sanguine about long-term growth prospects under Trump. For example, his relationship with Big Tech seems to have improved drastically, and that should be music to the ears of market bulls. American tech companies comprise a sizeable share of global developed equity markets and have been driving portfolio returns over the past decade. Through looser regulation (particularly around AI) and favourable policymaking, Trump’s administration looks to provide the perfect platform to catalyse this growth. 

Markets react differently to the news headlines

Finally, it's worth noting that while many of Trump’s actions are unexpected, he is not an unknown entity to investment managers. His words have moved markets before, and we’re all still here. The president’s proclivity to be more bark than bite means that the nature and severity of his future political and economic decisions are still largely obscure. Furthermore, the direct response of the market to policy announcements is often difficult to predict with any degree of accuracy. Rather, we believe it is imperative to maintain our long-term perspective on risk assets, while remaining finely tuned to short-term developments. 

For personalised advice and a comprehensive strategy that considers all these factors, we recommend speaking to your Financial Broker or Advisor.

*Source: Bloomberg, February 2025