How Trump’s Return May Drive Asset Class Positioning in 2025

Donald Trump’s victory in the US presidential contest and a likely Republican sweep of both houses of Congress provide clarity into the policies that will drive asset class positioning in 2025 and beyond. As we noted in a recent piece in the lead-up to the US election, we see five key areas where the incoming president’s policies could have a market-moving impact.

1. Trade policy. In addition to his proposed universal tariff of 10% to 20% on all imports, Trump has taken an aggressive stance on trade with China, proposing tariffs of 60%. While a rerouting of trade benefited Europe the first time around, universal tariffs would hit the Continent as well, further slowing industrial production and complicating economic recovery efforts. In a multipolar world, “tariff adversaries” including Mexico, China, and Europe will likely ramp up their response to counter US pressure, which could lead to a prolonged tit-for-tat that is damaging for sentiment and economic activity.

2. Taxes. In a red sweep scenario, Trump’s individual and corporate tax cuts under the Tax Cuts and Jobs Act of 2017, which are set to roll off at the end of 2025, will likely be made permanent in his second term. Trump may also reduce the corporate tax rate for domestic production and make various types of income exempt from the income tax. He could possibly bring back the state and local taxes (SALT) deduction and repeal green energy tax credits, while imposing steep new tariffs.

3. Antitrust policy. The Justice Department and the Federal Trade Commission (FTC) have been aggressive about blocking mergers and acquisitions under President Biden. Trump, on the other hand, is likely to take a much more hands-off and deregulatory stance, and we would expect him to replace FTC Chair Lina Khan with a Republican appointee. However, Trump has shown a broadly negative view of Big Tech and would likely be wary of consolidation in the industry.

4. Fiscal spending. We believe fiscal spending is likely to remain elevated under Trump. While the Inflation Reduction Act did not garner any Republican votes when enacted in 2022, we continue to believe a full repeal is unlikely, given that the fiscal stimulus is being felt in industries that are typically supportive of the Republican agenda as well as in many districts and states represented in Congress by Republicans. Defense spending may also ramp up under Trump.

5. Geopolitics. Trump and a large portion of the House Republican Conference have been less supportive of Ukraine and would likely scale back aid to the nation, and Ukraine may come under pressure to accept a resolution to the conflict that will involve some de facto loss of territory. Iran is also likely to come under increased pressure under Trump. The US’ broader swing to the right may also undergird similar shifts seen in parts of Europe.

Multi-asset portfolios: The macro picture comes into focus

Trump’s reelection poses a complex scenario for global markets, though overall we view his win as adding to the strengths of US assets and challenging those in the rest of the world.

If history is any guide, we can expect a somewhat tumultuous environment with a lot of uncertainty under Trump’s second term. However, as we wrote in a recent piece, we think the Trump 2.0 playbook will likely look quite different from Trump 1.0. While a Trump win could be viewed as a short-term tailwind for markets – and indeed, risk assets have rallied strongly – the picture could look quite different over the longer term: Aggressive tariffs and an immigration clampdown are economic negatives that the market would have to absorb, though deregulation could help offset their impact somewhat. Meanwhile, bond yields have risen on the news of Trump’s win, and looking further out, the likelihood of continued high deficits under Trump could keep yields elevated or even push them somewhat higher.

The tariffs imposed during Trump’s previous term were largely manageable, as companies had several strategies to cushion the impact. This time around, while companies will have had time to adjust, the potential for tariffs on a much larger scale along with more aggressive trade conflicts could make it more challenging for companies to avoid a financial hit. The areas either targeted by or most exposed to Trump’s proposed tariffs, including China, Mexico, and Europe, will likely respond in turn to counter US pressure. This could lead to a prolonged back-and-forth that hurts sentiment and economic activity.

The impact of tariffs on Chinese stocks will likely be nuanced, bearing in mind that only a small percentage of corporate revenue for listed Chinese equities is tied to exports to the US (though the equity risk premium for these stocks would surely rise). Beyond China, the broader impact of proposed tariffs on emerging markets would also likely be negative, with an immediate increase in risk premiums across these regions, particularly Mexico. In Europe, if redirected Chinese exports flood other markets, the influx might intensify competition in some sectors, including the automotive industry.

Tariffs are coming, yet their magnitude, and final negotiating concessions, will be the critical factors that determine the ultimate impact across markets.

Equities: secular themes persist, but tailwinds pick up for financials

Greater policy certainty in the US will help create a baseline from which companies can make spending decisions, potentially launching a new cycle of capex and investment.

We expect deficit spending to keep rising under Trump, and the higher inflation this entails would typically be good for equities as a whole. While our research process remains focused on bottom-up analysis of specific companies, we are mindful of net exposure to sectors that may be most affected by the shifts in policy.

We expect industrials to continue to benefit from three key long-term trends: near-shoring, green spending, and automation. US industrials will also likely benefit from Trump’s “Made in America” policy leanings, though Trump’s win is likely a net negative for industrials in the rest of the world.

The biggest change may be felt in financials, where under Trump we would expect deregulation, lower taxes, and a potential relaxing of anti-trust regulation to offer clear benefits. Bank stocks have already rallied strongly since the news of Trump’s win.

Trump is generally unfriendly toward Big Tech (with at least one notable exception), and healthcare may also face headwinds, with the IRA’s clampdown on prescription drug pricing set to continue.

Credit: fundamentals will likely hold

We view credit as the area least likely to feel a big impact from the election outcome.

In developed markets, we could see volatility in sectors such as healthcare and technology that have been sensitive historically to changes in government regulation. Additionally, sectors and issuers that faced trade war headwinds during the first Trump presidency will likely feel pressure again, though we note that many such issuers have made material shifts in their supply chains away from China via near-shoring and friend-shoring.

We see more potential risk in emerging market (EM) credit, where Trump’s tariff policies will generally be negative for China and emerging markets, particularly Mexico. Though we are cautious on Mexican corporate debt in the medium term given that uncertainty may slow some investment decisions, we believe Mexico and Mexican issuers will benefit from their strong relationship with the US in the longer term. In other parts of Latin America, issuers that export to the US may see a hit to volumes if a universal tariff is implemented, but we would not expect a big impact on these companies’ credit fundamentals.

Regardless of the potential for short-term fluctuations in pricing, we believe that fundamentals remain solid and any bouts of volatility will likely represent opportunities to add risk at more attractive levels.

For more insights on the impact of elections this year, visit Election Watch on pinebridge.com.