Now that the uncertainty of the election is over, what does a Donald Trump 2.0 presidency mean for the investment markets and the economy? While we will have more clarity as time goes on, for now there are 5 themes we see playing out:
- Continued “deglobalization” (America First policy). This is the U.S. focusing more on “onshoring” and protecting domestic industries. Pros are a more secured economy and more available jobs for workers. Cons are upward pressure on inflation and interest rates. Stock sectors that could benefit include small caps and industrials (companies such as Caterpillar and GE Aerospace).
- Much like #1 above, tariffs on imported goods protect domestic industry but also put upward pressure on inflation and rates. Sectors that could benefit include commodity producers (i.e. coffee, sugar), food producers, and a number of U.S industrial companies.
- Lower corporate taxes. Lower taxes on corporations mean more dollars available for investment, wages, stock buybacks, and dividends.
- American Industrial Renaissance (AIR as called by RBA Advisors). The rebuilding of America’s infrastructure (in energy, utilities, ports/rails) is part of the artificial intelligence revolution. With an estimated 50% of the $1.2 trillion 2021 Infrastructure Act unspent, there are large sums of money that can be put to work. Sectors that could benefit include industrials, materials, energy, transports (ie Deere, Eaton, Nucor, Enbridge, United Rentals, Quanta).
- Higher U.S. government debt and deficits. As I recently wrote, discussion of U.S. govt debt/deficits have been lacking for not just this election, but for the last number of election cycles. As the U.S. dollar remains the reserve currency of the world, the debt/deficit issue can go on for the short/medium term with little negative ramifications. However, this is an issue to watch as longer term, higher debt/deficits puts downward pressure on the value of the dollar and upward pressure on inflation and interest rates.
As the investment markets “front-run” many of the above expected themes for the Trump 2.0 presidency, positioning your portfolios before the above themes hit mainstream (IF they play out), is part of our prudent investment management of your investment accounts.
