What Does a Future Trump Presidency Mean for Your Portfolio?
As we look ahead to Donald Trump returning to the White House in 2025, it's crucial for high-net-worth individuals to consider how his potential policies could impact financial markets and investment strategies. A second Trump presidency could bring about significant economic shifts, affecting everything from tax policies to trade regulations. Here’s what you need to know to prepare your portfolio for a future Trump administration.
Tax Policies
One of the hallmarks of Trump’s first term was the Tax Cuts and Jobs Act (TCJA), which significantly reduced corporate and individual tax rates. Trump may push for further tax cuts or extensions of the TCJA provisions set to expire in 2025.
Impact on Portfolios:
Corporate Earnings: Further tax reductions could boost corporate earnings, benefiting stock prices. Sectors like technology, healthcare, and financials, which saw substantial gains from the TCJA, might experience similar benefits.
Individual Tax Planning: High-net-worth individuals might see reduced personal tax burdens, providing more opportunities for investment and savings as well as material changes to the expectations of estate tax law. Strategic tax planning, particularly around estate planning in the next few years is going to be important to optimize tax benefits.
To prepare, investors should stay informed about potential tax changes and consider working with financial advisors to implement tax-efficient strategies.
Deregulation
Trump's first presidency was characterized by significant deregulation, particularly in the financial and energy sectors. A second term might bring further efforts to roll back regulations, aiming to stimulate economic growth in these areas.
Impact on Portfolios:
Energy Sector: Continued deregulation could boost fossil fuel companies. Investing in oil, gas, and coal companies may provide meaningful returns, especially if regulatory costs decrease. However, one needs to be cautious as energy companies did not perform well during his prior administration. Often when regulations are lifted on commodity type businesses it can lead to more drilling, which leads to more supply, which can pressure energy prices.
Financial Sector: Reduced regulations might enhance profitability for banks and financial institutions, making stocks in this sector attractive. The yield curve has already started to steepen and may continue to steepen which benefits financial companies that “borrow short and lend long”.
In addition, there has been increased regulatory scrutiny by the FTC of large cap tech companies regarding monopolistic practices. Trump has indicated he may fire FTC commissioner and bring about a season of decreased scrutiny in this area.
Trade Policies and Tariffs
Trump's trade policies, particularly his aggressive stance on China, created market volatility during his first term. A second term might see a continuation of protectionist trade policies, including tariffs and renegotiated trade agreements.
Impact on Portfolios:
Manufacturing and Technology: Companies heavily reliant on global supply chains, especially those involving China, may face increased costs and uncertainty. Diversifying investments to include companies with more robust domestic supply chains could mitigate risks.
Domestic Production: There may be opportunities in sectors focused on domestic manufacturing and infrastructure. Stocks of companies involved in these areas could see growth as policies encourage production within the U.S.
Inflation and Corporate Earnings Expectations: Tariffs caused S&P500 earnings to drop in the second half of Trump’s first term and can have an upward impact on inflation. Future expectations of corporate profitability and levels of inflation can have a meaningful impact on stock market valuations.
Investors should monitor trade developments closely and consider diversifying their portfolios to hedge against potential trade-related volatility.
Federal Reserve and Interest Rates
Trump has been vocal about his desire for lower interest rates. In his return to office, his influence over the Federal Reserve could result in continued or renewed pressure to maintain low interest rates.
Impact on Portfolios:
Real Estate and Utilities: Low interest rates typically benefit sectors like real estate and utilities, which rely on borrowing. Real estate investment trusts (REITs) and utility stocks could be attractive investments.
Bond Market: Persistent low interest rates might make bonds less appealing, pushing investors toward equities and other higher-yielding assets.
The risk to this outlook, however, is inflation. If inflation comes roaring back due to trade policies and immigration policies, this could cause interest rates to actually rise despite the Fed’s efforts to lower them.
Strategic Decisions for Your Future Wealth
Given the potential for significant policy changes under the next Trump presidency, high-net-worth individuals should consider the following strategic decisions:
Sector Diversification: Maintain a diversified portfolio to mitigate risks from policy-induced market volatility that may hit specific sectors harder than others.
Revisit Tax Strategy and Planning: Given the likelihood of significant tax changes, investors should revisit their overall tax strategy, including their estate plan, and ensure it aligns with the most tax-efficient decisions for any new tax laws that get passed.
Own Quality: Here at Fortis, we believe in owning the highest quality businesses in the world. These tend to be businesses that have pricing power, gush cash flow, have strong competitive positioning, high margins and strong management teams. By owning the highest quality businesses, you own companies that have a high probability of being able to adapt to whatever political environment we may find ourselves in.
Work with an Advisor: Having a team at your back monitoring all of these developments and being able to counsel you on how to best take advantage of changes in tax law or economic policies can add significant value to your long-term net worth.
Conclusion
The coming Trump presidency may bring significant changes to the economic and regulatory environment, impacting various sectors of the market. High-net-worth individuals must be proactive in adjusting their overall strategies to take advantage of changing laws and mitigate risks. At Fortis Financial Group, we specialize in creating tailored investment strategies that can withstand evolving political and economic landscapes. Contact us today to ensure your portfolio and financial plan is well-positioned for potential shifts and to secure your financial future amidst the uncertainties of the coming administration.
