Donald Trump is being inaugurated into office for a second time. He swept to victory in a historic comeback for the Republicans in the US Election in November, after beating the Democrat candidate and Vice President Kamala Harris in every swing state.
So, what does a second Trump term mean for investors looking to invest in the US market?
This article is not personal advice. If you’re not sure an investment is right for you, ask for financial advice. Investments will fall as well as rise in value, so you could get back less than you put in.
What impact could a Trump presidency have on the markets?
We know too well that the past is rarely an accurate guide to the future. However, we can take some cues from what we know about Trump’s last term in office.
Trump’s presidency from 2016 was received positively by the markets overall. This was thanks to some corporate-friendly policies.
However, his style of presidency caused some volatility.
This often came down to the market’s tendency to focus on Trump’s social media announcements.
It’s difficult to interpret the logic and detail of an announcement made via a social post and we know that the market doesn’t like uncertainty, so this creates volatility.
We can expect to see a continuation of this style in his upcoming presidency.
And this time around, Trump will be inheriting record levels of US deficits. This means his room for manoeuvre when it comes to fiscal policies and spending is more restricted.
Despite this, Trump is proposing to cut corporate taxes, which is positive for companies’ earnings – and therefore stock prices. However, these tax cuts aren’t expected to be fully funded through spending cuts and could therefore push up the deficit further.
Trump is also proposing tighter controls on immigration, including the removal of undocumented migrants. This could reduce the size of the labour force, pushing up wages, and send consumer prices higher.
Higher inflation would be bad for stocks and bonds.
Which sectors are the winners and losers?
A Trump presidency could benefit some technology stocks, especially those less exposed to the impact of tariffs. We also know from his first presidency that his ideals involved reducing the burden of regulation. This could be perceived as a supportive move for corporations.
Trump has also consistently championed the fossil fuel industry, advocating for deregulation to boost oil, gas, and coal production. Last time he rolled back more than 100 environmental rules.
One area where Trump and his rival presidential candidate Kamala Harris seemed aligned was their ‘America first’ approach. This could see initiatives aimed at defending local manufacturing and businesses, protecting American jobs and strengthening the US economy.
What impact could the US election have on international markets?
Another shared value is a relatively tough stance against China, deemed a major and strategic rival. Although, Trump takes a more extreme view on how to deal with competition from Chinese companies.
Trying to predict the impact of a trade war or tariff exchanges with countries like China is difficult. A lot depends on how other countries react to US foreign policy under the incoming president.
During the trade war with China under Trump’s former presidency, we saw additional inflation within the US, but no major impacts on global trade. However, ongoing trade tensions and the potential for tariffs could pose risks to companies with international supply chains or markets.
Where there could be real uncertainty is in US foreign policy with countries like Russia.
We know from his former presidency that Trump is likely to be more engaged with them than outgoing President Joe Biden has been.
This has potential knock-on effects for Europe and its energy policy, after it shifted its reliance from Russia to the US for its energy supply following Russia’s invasion of Ukraine.
A negotiated settlement between Russia and Ukraine would be positive for the world economy and reduce the perceived risks in markets – but most importantly for the devastating human impacts we’ve seen so far.
Invest in the US with HL
The US makes up over half of the global stock market and we think it’s just too big to ignore.
Election fallouts and leadership changes can bring short-term volatility, but we invest for the long-term with the HL US Fund.
We have handpicked external fund managers who we believe offer the best potential for long-term performance.
The external fund managers manage their own portions of the fund and we’ve given them clear boundaries on how to run them following their tried and tested strategies.
Investors should note this fund invests in smaller companies which adds risk.
HL funds are managed by Hargreaves Lansdown Fund Managers Ltd., part of the Hargreaves Lansdown Group.
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In the Wealth Shortlist, they’ve handpicked only the ones that their in-depth analysis indicates have the greatest performance potential.
Find out which US funds made the cut.
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