The Economic and Market Impact of the Trump Administration's Agenda

With Donald Trump set to be inaugurated as the 47^th President of the United States on January 20^th, 2025, the new administration’s agenda and policy priorities are expected to significantly influence U.S. and global markets.

The Trump administration’s economic agenda – marked by tax cuts, deregulation, and protectionist trade policies – could stimulate short-term growth while introducing long-term risks and volatility. While we do not know what will happen definitively, some conclusions can be drawn about the public and private markets, as well as the overall economy.

Equity Markets

• Corporate Tax Cuts and Deregulation

  As demonstrated during his first term, President-elect Trump’s economic strategy can be expected to prioritize corporate tax cuts and deregulation. The 2017 Tax Cuts and Jobs Act (TCJA), which is set to sunset at the end of 2025, slashed the corporate tax rate from 35% to 21%, and spurred stock buybacks and dividends. While the Biden administration was intent on letting the TCJA sunset, the Trump administration seems to be intent on maintaining the lower corporate tax rate. This extension could drive corporate profits and boost equity prices, particularly in the technology, energy, and manufacturing sectors. Deregulation – another hallmark of the President-elect’s policies – could reduce compliance costs for energy, finance, and manufacturing industries, enhancing profitability and creating a favorable short-term environment for stocks in these sectors.
  
  

• Trade Protectionism and Market Volatility

  A protectionist trade stance, including tariffs and renegotiated trade agreements, poses risks to global supply chains and sectors reliant on international trade, particularly technology and automotive. Increased production costs and retaliatory tariffs could weigh on corporate earnings in agriculture and aerospace. Trade tensions, especially with China, could trigger market volatility. Companies with significant international exposure may see stock price fluctuations, further exacerbating investor uncertainty.
  
  
  

Fixed Income Markets

• Interest Rates and Fiscal Policy

  To finance the President-elect’s proposed defense and infrastructure enhancements, the government would seemingly be forced to issue more debt, pushing long-term interest rates higher. The market may require higher interest rates on US government bonds if the deficit and debt load raise the overall risk profile.
  
  

• Inflation Expectations and the Federal Reserve

  Tax cuts and fiscal expansion can drive inflation, which puts pressure on the Federal Reserve to hike interest rates. Although the President-elect has advocated for lower rates, inflationary pressure could force tighter monetary policy, which would negatively impact bond values and contribute to equity market volatility. Short-duration bonds and inflation-protected securities (TIPS) may become more attractive in this environment.
  
  

• Geopolitical Risk and Flight to Safety

  Confrontational foreign policies generally heighten geopolitical risks, boosting demand for U.S. Treasuries as safe-haven assets during periods of global uncertainty. However, aggressive trade policies usually lead to broader market selloffs, creating mixed effects on bond yields.

Private Equity

• Tax and Deregulation Benefits

  Private equity managers benefit from lower corporate tax rates and deregulation, which enhances corporate profitability and increases deal attractiveness. Deregulation may particularly favor sectors like energy, healthcare, and finance.
  
  

• Leverage and Risk Appetite

  Lower taxes and deregulation could spur leveraged buyouts (LBOs), allowing private equity firms to increase deal volume and potentially achieve higher returns. However, if interest rates rise and heighten borrowing costs, then heavily leveraged acquisitions become much riskier and deal volume drops.
  
  

• Global Trade Tensions

  Protectionist policies could challenge private equity firms with global portfolios. Trade barriers might reduce growth in international markets, compelling firms to reevaluate strategies for investments in regions like China and Europe.
  
  
  

Private Debt

• Borrowing Costs and Inflation

  Higher inflation and interest rates could raise borrowing costs, making credit more expensive for small- and medium-sized enterprises reliant on private debt. On the other hand, deregulation could create opportunities for private debt providers to serve underserved markets.
  
  

• Distressed Assets

  Economic uncertainty and slower-than-expected rate cuts could lead to an uptick in distressed assets, providing opportunities for private debt investors specializing in restructuring and turnaround strategies.

Private Real Estate and Infrastructure

• Infrastructure Spending

  Infrastructure investments are expected to be central to President-elect Trump’s policies. Increased spending on roads, bridges, and broadband would boost opportunities for private equity and real estate investors involved in construction and public-private partnerships.
  
  

• Deregulation in Real Estate Development

  
  Reduced zoning and environmental regulations generally streamline real estate development, increasing profitability. However, such policies might also risk market oversupply if projects are poorly planned or economic conditions deteriorate.

With President-elect Trump’s second term set to begin in January 2025, investors should expect some reshaped market dynamics across public and private investments. While tax cuts, deregulation, and infrastructure spending could bolster specific sectors, risks such as geopolitical tensions, trade conflicts, and potentially rising inflation could create volatility.

For long-term investors it is imperative to remain steadfast with sound asset allocations, disregarding the noise created by the changing guard. Similarly, short-term investors should rely on low-risk income-oriented strategies that can avoid the possible volatility posed by the equity markets.

We believe investing starts with a comprehensive plan composed of clear goals and objectives, which informs the asset allocation. It has been proven repeatedly that timing the market typically proves futile when compared to time in the market.

Our Sources

• BlackRock Investment Institute. "U.S. Election 2024 Results." BlackRock, BlackRock, https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/us-election-2024-results. Accessed 2 Dec. 2024.
• Goldman Sachs. "How Trump’s Election Is Forecast to Affect U.S. Stocks." Goldman Sachs, https://www.goldmansachs.com/insights/articles/how-trumps-election-is-forecast-to-affect-us-stocks. Accessed 2 Dec. 2024.
• FS Investments. "Bet on Change: Election 2024." FS Investments, 12 Nov. 2024, https://fsinvestments.com/wp-content/uploads/2024/11/FireSide_Bet-on-Change-Election-2024_11-12-2024_FINAL.pdf. Accessed 2 Dec. 2024.
• Morgan Stanley. "Trump Re-Election: Implications for Markets." Morgan Stanley, https://www.morganstanley.com/articles/trump-re-election-implications-for-markets. Accessed 2 Dec. 2024.
• Private Equity International. "How a Trump Presidency Could Impact the PE Industry." Private Equity International, https://www.privateequityinternational.com/how-a-trump-presidency-could-impact-the-pe-industry/. Accessed 2 Dec. 2024.
• S&P Global. Trump Presidency: Potential Implications for U.S. Markets and Credit Ratings. S&P Global, https://www.spglobal.com/_assets/documents/ratings/research/101607872.pdf. Accessed 2 Dec. 2024.
• "Trump’s Tariffs Threat Could Hit Private Credit Borrowers." Alternative Credit Investor, 2 Dec. 2024, https://alternativecreditinvestor.com/2024/12/02/trumps-tariffs-threat-could-hit-private-credit-borrowers/. Accessed 2 Dec. 2024.
  

To learn more about economic and market impact, contact one of our trusted advisors.