As Trump 2.0 takes shape, this administration is tackling multiple policy fronts simultaneously – by Lale Akoner

 

Historically, a new administration focuses on a dominant policy each year—tax reform in 2017, the trade war in 2018, COVID-19 in 2020, and industrial policies like the CHIPS Act in 2021. This time, however, the noise-to-signal ratio is exceptionally high. Investors need to focus on what is known and what matters.
 

Market performance under a new administration

 

Historically, the first year of a new president has been positive for stocks, provided there is no recession. The last four cycles have averaged +20% returns in year one, with the second year typically bringing more challenges.

Financial stocks have outperformed the S&P 500 in every first year of a new president since 1973, except in 2009. Healthcare stocks have also outperformed in the first year of every Republican administration since Reagan took office in 1981.

 

Trade and tariffs: potential winners and losers

 

With their scope and sequencing still unclear, much of the debate around trade policy hinges on “known unknowns.” What is evident, however, is that FX markets are the first to reflect trade policy changes. Markets are currently pricing in a scenario that resembles a broad global tariff.

Trump is using the threat of reciprocal tariffs to get countries to negotiate with him directly, as seen in his dealings with Indian PM Modi. If enacted, these tariffs would hit emerging markets like India, Argentina, Mexico, Brazil, Vietnam, Taiwan, and Indonesia the hardest.

The services sector is expected to outperform the goods sector in such an environment. The ‘winners’ are companies that stand to benefit from border-adjustable tax policies include Boeing and General Electric, and financial institutions such as Bank of America and JP Morgan. On the other hand, companies like Walmart, Nike, and Toyota could face headwinds due to supply chain disruptions.

China, however, remains a unique case. Trump has made it clear he does not want US companies operating in China, putting pressure on firms heavily exposed to the region. It’s also worth noting that a weaker USD would favour non-US stocks, and European markets are already pricing in an end to the Ukraine war.

 

Fiscal policy: tax cuts, spending and debt

 

If Congress passes unpaid-for tax cuts, the bond market could react negatively and push yields higher, especially if there is also sticky inflation, tariffs and a budget deficit. Therefore, Trump is likely to prioritise reducing government spending through DOGE, which could pressure sectors such as consumer staples, energy, education, and transportation while benefiting defense stocks.

For the first half of 2025, markets are likely to be supported by liquidity from the U.S. Treasury. Since hitting the debt ceiling on January 21st, the government has been paying its bills without issuing new debt, creating a $400–500 billion liquidity tailwind that mimics quantitative easing. This will keep financial conditions loose until Congress raises the debt ceiling.

Treasury Secretary Scott Bessent has said that key indicators for the new administration include the 10-year Treasury yield, oil prices, and gold prices. Investors should monitor these closely to assess the direction of economic policy.

 

Lale Akoner is Global Markets Analyst at investment platform eToro





Leave a Reply