Clear Cut: The Return of Trump – Which Assets are Interesting and Which Issues to Watch
3 View
Published by Wealthy Thai: https://www.wealthythai.com/th/updates/mutual-funds/fun-of-funds/33836
Since the US election in early November, risky assets, including the US stock market and the Cryptocurrency market, have been celebrating Donald Trump’s return to the presidency with a strong rally. The US stock market has risen by 4.7%, small-cap US stocks (Russell 2000) have increased by 6.7%, and Bitcoin has surged by 34% (as of November 14, 2024).
After this, for the next four years, the world of the investment market has the potential for volatility and will move in line with the policies set by the number one global superpower, the US, which will be controlled by “Donald Trump.” This is similar to what we saw between 2016-2020, where the overall returns of the investment market were relatively good but came with high volatility.
However, if we can analyze the key issues that will arise during Donald Trump’s era, it will give us a better opportunity to structure our investment portfolios and plan our investment strategies for the next four years.
Summary of 5 Key Issues We Will Face in the Donald Trump Era and Their Impact on the Investment Market
- US Corporate Tax Cut Policy
A key policy consistently promoted by Trump is the extension of the corporate tax cuts under the Tax Cuts and Jobs Act (TCJA) through 2034. This would reduce the corporate tax rate from 21% to 15%.
Goldman Sachs estimates that every 1% reduction in the corporate tax rate would increase the earnings of US companies in the S&P 500 by 1% and the earnings of small-cap companies in the Russell 2000 index by 1.2%. Looking back to late 2017 when Trump first introduced this policy, the US S&P 500 stock market rose by over 20%. Therefore, this factor is expected to be a significant tailwind for the US stock market in 2025.
- US Inflation likely to rebound and remain in the 2.5-3.0% range, causing the FED to slow down interest rate cuts.
Due to the tax cut policies and various economic stimulus measures planned for the Trump administration, US inflation is likely to accelerate (inflation tends to be higher during economic booms). During Trump’s previous term in 2017, US inflation was only 1.7% before accelerating to 2.9% (pre-COVID-19). It is therefore expected that inflation could accelerate again this time, causing the FED to face another inflation headache and slow down its pace of interest rate cuts. The slower pace of rate cuts would lead to higher US bond yields, which could put short-term pressure on the returns of international bond funds. However, the stock market might not be significantly affected by this issue. Although funding costs may remain high due to slow rate cuts, the stock market will benefit from a stronger economy. It is therefore recommended that investors should increase their allocation to US stocks or US equity funds, while maintaining or reducing their allocation to US bonds in the future.
3 Ending Wars and Strengthening US Security
There is a high probability that Trump will support negotiations to end the war between Russia and Ukraine, pressure Israel to seek a truce with Hamas, and consider security issues with Taiwan. We are likely to see Trump take action on these key issues. However, various international problems remain complex. It is believed that Trump will help de-escalate these conflicts but not end them completely. Therefore, geopolitical conflicts will continue to be a factor weighing on the global investment landscape. However, investors who wish to hedge their risks can invest in alternative assets such as gold or oil, which often perform well during times of conflict.
- Full-Scale Support for Cryptocurrency
It’s clear that ever since Trump’s polls surpassed Harris’, major assets that have surged in response are cryptocurrencies. After the election results were confirmed, the crypto market’s momentum became unstoppable. Trump’s policy is to support legal amendments to widely develop and use cryptocurrency in the U.S.
However, while Trump’s crypto policy is expected to be implemented, it may not be a primary focus as he prioritizes the economy first. Therefore, although the trend for cryptocurrency and Bitcoin is likely to be bullish during the Trump era, investors should remain cautious.
- International Trade Policies and Their Impact on the Global Economy
Starting in mid-2025, the new US, European, and Chinese import tariffs—including a 10% increase on imports among them and a general 10% tariff on all other US imports—are expected to have a negative impact on the global economy. It is anticipated that other countries will retaliate by imposing their own tariffs on US goods. These measures will affect 25% of global trade value, or over 6% of the global economy, and are projected to reduce global economic growth by 0.3% between 2025 and 2030.
In summary, Trump’s second term will undoubtedly introduce volatility to the investment world due to his policies on the economy and security. However, the issues analyzed above are those we can “predict.” As you know, President-elect Donald Trump often has a “surprise” for us, so it is crucial to remain cautious and vigilant in your investments over the next four years.
