Since Trump officially started his second term on 20^th January 2025, markets have generally reacted positively. Given the US’s dominant influence on global economies, Trump’s new policies will likely have a knock-on effect to other countries and markets… whether that’s a positive or negative effect, who knows!

Trump has started his term in office by stating several of his intentions as President, some of which completely contradict each other. For example, he has promised to kill inflation whilst also proposing large tax cuts and government spending which could be massively inflationary. It is somewhat difficult to predict a) what he will get past congress and actually do, and b) how the global economy and markets will react. So the question is: do we keep investing in the US or move our investments to other economies?

As unpredictable as Trump can be, what seems fairly certain is the implementation of protectionist policies like tariffs, with higher tariffs for China, Canada and Mexico, and lower tariffs for all other countries. The aim of this is to counter what Trump views as unfair trade practices particularly by China, to discourage US citizens to import and to bring manufacturing jobs back to the US, all to boost US economic growth. However, these tariffs could cause Geo-political friction and instability and potentially supply chain issues. As China is a strong economic player in its own right, it may implement a similar tariff to imports from the US, which would make US exports less competitive in China. However, smaller economies like Canada and Mexico rely on trade with US more than China does so they may not be able to afford to implement a tariff against US imports. Therefore, the consequences of these tariffs could actually have a negative effect on certain sectors of US firms such as technology, agriculture, energy and auto-motives as these sectors export a lot of their goods. There aren’t many potential substitutes for US technology but agricultural products like corn are easier to find substitutes in other countries so the US may struggle. Another issue is that these tariffs understandably cause tension between the nations which can cause other issues such as currency instability, reduced global growth, trade disruptions, geopolitical rivalries and weakened global institutions.

Another major change Trump proposes to make is the implementation of pro-business policies such as the tax cuts, deregulation and increased government spending. This is part of an attempt to quickly boost the US economy. Also, deregulation should encourage more private investment and corporate activity. Stock markets usually react positively to pro-growth policies. This has potential to have a positive effect short term as businesses and consumers will have more money to spend which in theory does boost the economy. However, this will also cause a boost in inflation which could cause the Federal Reserve to raise interest rates again, which would then have a negative effect on the economy as it will cost more for businesses and consumers to borrow.

An issue with Trump in general is his erratic communication style, especially on his social medias. These often cause market swings so markets generally have more short-term volatility during a Trump presidency.

Considering the above, some sectors should benefit from Trump’s presidency, albeit probably more short term. Longer term, I think if Trump does everything he sets out to do, he may cause a lot of problems in the economy, mainly disrupting trade between countries, which would have a big knock-on effect to the rest of the world.

To come back to the original question: is the US the place to be investing during the Trump presidency? The answer is… who knows!? But in my opinion, Trump’s main aim is to boost the US economy and provide support for US businesses, so the US equity market should do well. We believe the US small, mid and large cap companies’ revenue should pick up and likely grow quicker than the mega-cap, so called, magnificent 7, which should cause the overall market to become more even and less heavily weighted on those mega-cap names. So to conclude, we think the US should continue to be a strong economy and market to invest in, but maybe more focused on the smaller end of the market and avoiding areas of high exports.