What Trump’s Victory Means for Investors
As the dust settles on Donald Trump’s election victory, investors globally are adjusting quickly as they look ahead to 2025 and beyond. Trump’s win is not just a political event, it is a significant adjustment for the investment landscape. While some sectors are poised to benefit, others will struggle with volatility and uncertainty. ?
When Trump was first elected in 2016, much of his strategy revolved around prioritising an America-first foreign policy. This created significant shifts in global alliances, trade agreements, and even military positioning. With his return to power, investors need to understand how his emboldened “America First” approach will impact geopolitical stability and market sentiment.?
Trump has previously prioritised military strength, and his second term will see the US continuing to invest heavily in its military as they expand their military budget. This will be to the benefit of defense contractors such as Lockheed Martin. This increase in military budgets is not limited to the US though. Trump previously pressured other NATO countries to meet and increase their defense spending obligations. As geopolitical tensions across the world rise, many countries will be increasing their military spending. ?
From a geopolitical perspective, Trump’s proposed use of tariffs is great news for US manufacturers but bad news for almost every other country. In the past, Trump used tariffs as leverage in trade negotiations. This time around, his intent is to protect US businesses and generate income. China is likely to feel the brunt of Trump’s policies which will directly impact Chinese companies exporting to the US. The auto industry is a good example where tariffs of 60% are designed to stop China from exporting cheap electric cars to assist a re-emergence of the US auto manufacturers. ??
China’s economy has been struggling for the past few years under the weight of a collapse in the property market, an oversupply of infrastructure projects and the high debts related to these sectors.?Additional economic headwinds for China, due to Trump imposed tariffs, won’t help the prospects for commodities, especially for materials. We remain underweight in our exposures to BHP and RIO as lower demand for iron ore continues to be problematic. ?
Trump has consistently pushed for energy independence for the US. If he maintains or intensifies his support for domestic energy production, several US energy stocks such as Chevron will benefit. Energy is one of our highest conviction, long-term themes, and as such we remain bullish on domestic energy giants such as Woodside Petroleum and Santos. Additionally, coal stocks, amid global energy concerns, could continue their upward trend, particularly those with strong exports to the U.S. Further, instability in the Middle East, could send prices soaring at any point. Trump’s stance on environmental and social governance (ESG) may hurt companies prioritizing sustainability initiatives and clean energy.?
The financial sector, particularly banks and investment firms, will likely benefit from Trump’s policies. A more lenient regulatory environment in the U.S. has been favorable to banks, allowing them to take on more risk and increase profitability. For Australian investors, this could translate into more growth for companies like Macquarie Group, which is well-positioned in both domestic and international markets. If the Trump administration reduces regulatory hurdles for major banks, Australian financial institutions may find new opportunities in global markets, especially in the U.S.?
A less obvious flow-on effect is in relation to bonds and bond yields. Trump will be spending more than ever, and the US will borrow to do so. This will be trillions of dollars in additional debt. Counter-intuitively, we have seen bond yields move up since the Federal Reserve cut rates by 0.5% in September and since the election bond yields have jumped again. Some of this is related to the sheer volume of debt the US must raise going forward, new debt and refinancing maturing debt. It is basic supply and demand. When you have a lot of something to sell, you need to make the pricing?more attractive to the buyers. US debt and deficit are an emerging theme to watch for 2025 and 2026.?
While investment markets have seen Trump’s pro-growth philosophy as great for business, the trillions in additional spending and the proposed tariffs are inflationary as they will cause prices in the US to rise. Inflation in the US is not solved yet and there is an assumption that it is no longer a problem. US inflation is much lower at 2.3% but core inflation is still uncomfortably high at 3.3%. So, with pressure on prices inflation may well be a reemerging concern in 2025.?
For those invested in US stocks,?energy, and defense, Trump’s victory looks positive with the prospect of?continued growth. On the other hand, those with heavy exposure to China, ESG-focused firms, or international trade could see more volatility.? Investors should be prepared for change and keep an eye on sectors most influenced by US policy shifts. However, perhaps the most?important areas to watch in 2025 will be the impact of all this on the US national debt and inflation rate. ?
General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.