He’s Coming to Town!

IBOSS Investment Team Donald Trump US Equities December 2024

Whether you love him, loathe him, or just try to ignore him, one thing is certain: he’s coming back. Despite not officially starting his second term until his inauguration on January 20, 2025, it feels for all the world as though Donald Trump is already behind the wheel and firmly directing US policy both economically and geopolitically.

So, while it is still very early, what do we think we know, and what could this mean for the investing landscape?

“Get going. Move forward. Aim high. Plan a takeoff…”Donald J. Trump

Trump clearly has no intention of letting the post-inauguration period pass him by, and he has approached his second term with much more confidence. By his admission, he has a much clearer idea of what is required of him and what the potential market reaction to any early moves is likely to be.

Focussing on the economy and the read across to US assets, we, and much of the investment world, see Trump’s second term as being relatively positive.

“Oh boy, it’s a lot of regulations”Donald J. Trump

As per his previous term, many commentators expect he will aim at making it much easier for US companies to conduct business. Therefore, his policies are likely to reduce red tape, reduce taxes, and increase/ implement tariffs on international trade.

Reducing red tape and taxes is indeed viewed as market-friendly. However, many disagree with Trump’s interpretation that protectionist policies like tariffs safeguard and promote US jobs at the expense of other countries. We believe that the applications will likely have much more complicated potential outcomes.

Determining the actual effects will depend on whether Trump’s actions are as aggressive as some of his campaign rhetoric.

Surrounded by “Only the best people”Donald J. Trump

Two of his more high-profile appointments have been Elon Musk, who oversees government efficiency and Scott Bessent, whom he has made Treasury Secretary.

Musk’s appointment has already sparked renewed optimism and enthusiasm in parts of the US tech market, particularly in some cryptocurrencies and the stocks known collectively as The Magnificent Seven. Conversely, Bessent’s appointment has been seen as a sensible choice considering his market experience.

The US was already forging ahead of many other countries in its research and development spending (R&D). Considering these appointments, many expect this trend to continue and perhaps speed up in relative and absolute terms, particularly against other developed market peers, e.g., in Europe.

“Unleashing American energy”Donald J Trump

Low cost and reliable energy are vital parts of any growing economy. Under Trump, the US is expected to focus on energy sources with the lowest cost of capital. This clearly indicates that Trump means to put aside the green agenda and prioritise the economy in the here and now.

Again, this will likely give the US an advantage over countries more focused on climate goals. It is worth noting that the two largest economies in the world, namely the US and China, will shortly have energy policies that are designed to facilitate maximum economic growth, with China continuing to diversify its energy sources through its solar and nuclear ambitions and, perhaps paradoxically, rapidly expanding coal as a base load energy source.

“In this term, everyone wants to be my friend”Donald J. Trump

In summary, if we accept that Trump can enact a reasonable proportion of his campaign agenda, it should prove positive for many US equities. Considering these potential tailwinds, we are likely to increase our US equity exposure in the coming months. That said, it is vital to note that US equities are still very expensive relative to their historical prices and relative to most other equity markets globally. A fact that is particularly pertinent when discussing The Magnificent Seven stocks, which often trade at eye-wateringly high prices and now make up a record percentage of the S&P 500.

Another point that should not be ignored is that much of Trump’s agenda is potentially inflationary, which could reduce or remove the US Central Bank’s ability to cut rates. Something that has historically been a considerable headwind to markets.

We would also note that the inflationary aspect of his plans means that the outcome for US bonds is much less predictable and, therefore, much less positive.

 

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