Radical Politics and Your Money
On 23 January 2017, Sean Spicer, the newly appointed White House Communications Director, held his first press conference. It quickly became infamous: Spicer aggressively defended a patently false claim about the size of Donald Trump’s inauguration crowd to the incredulity of the gathered press corps. The tone was set for a new type of US administration. Spicer didn’t last long in the role, partly because he was becoming such a hapless star. He would ultimately be replaced by Anthony Scaramucci.
The early days of Trump’s first presidency were gripping political theatre. I’ll admit to feeling a guilty thrill watching officials spar with the press. Conflict makes for compelling drama, and there was no shortage of it. We weren’t used to U.S. administrations sounding like this. Eight years on, we’ve become inured to Trump’s confrontational style, and his team is more internally united. But the capacity to shock remains: the Oval Office press conference between Trump, Vance and Zelensky was jaw-dropping.
The potential (and willingness) to shock financial markets hasn’t diminished either. If anything, it has increased, as tariff announcements demonstrated. Trump is a radical politician, both in policy and presentation, and it’s worth considering how this might affect your financial future. So here we present some of the ways in which a portfolio of financial assets could be impacted:
Lower Global Growth
While some tariffs have been rolled back since "Freedom Day," many remain. Their impact on global trade was immediate, with ships rushing to U.S. ports before the new levies kicked in. Other countries feel compelled to retaliate. The broad result is likely weaker global GDP growth. Not all of this is a result of Trump tariffs – reshoring vulnerable supply chains has been an active issue since COVID. For investors, though, this means a tougher environment for generating returns through equities, regardless of where your assets are held.
The US Stock Market
The U.S. tech giants that embraced Trump after his re-election are not just American; they are global businesses. These firms dominate U.S. and global stock indices, and by extension, many investment portfolios. Trump’s tactics could open new markets by using tariffs as leverage to force other countries into easing regulations. But the administration’s enthusiasm for decoupling from China could do real damage to both intertwined economies and the behemoth businesses that have operations across them.
Take Nvidia and Apple. Their success relies on intricate global supply chains and deep international expertise. Their value will be undermined by further decoupling of the world’s two largest economies. They are also such big companies that it is hard not to own a little piece of them; most global equity indices have big chunks in these large companies. Whether you realise it or not, part of your financial wellbeing may be tied to their fate.
Inflation
Trump has made no secret of his desire for lower interest rates. Central bank independence was originally designed to boost investor confidence by insulating monetary policy from political pressure. But Trump has little time for such conventions. He will have the opportunity to appoint the next Federal Reserve Chair and will likely favour someone "dovish," i.e. inclined to cut interest rates. If interest rates are set too low, the risk of reigniting COVID-era inflation increases. Inflation, in turn, erodes the value of most assets, but bonds suffer in particular.
US Assets
The Trump administration has also proposed heavy taxes on foreign investors holding U.S. financial assets. Given how much global capital is concentrated in the U.S., this is significant. Making U.S. markets less attractive could weaken the dollar, drag on U.S. equities, and reduce the value of US government bonds. If your portfolio includes these assets, that could translate into real losses. Conversely, holding equities outside the US, such as Europe or Japan, may prove more profitable by comparison.
Will It Really Happen?
Rob Armstrong of the Financial Times recently coined the term “TACO trade”—short for “Trump Always Chickens Out.” It’s caught on to the extent that Trump himself has publicly fumed about it. The idea is simple: while bold, even reckless, policies may be announced, they are often quickly abandoned. Markets dip but recover when Trump backs down. Rinse and repeat.
It’s possible, therefore, that the more extreme policies won’t materialise. Or if they do, they may be short-lived.
Still, some changes are likely to prove durable. A persistent uncertainty premium on long-term U.S. government debt and downward pressure on the dollar are likely to linger. But it’s not yet clear whether we’re heading into a radically different global economy.
There’s a cliché that investors “climb a wall of worry.” That markets often advance despite persistent concerns. Staying invested remains the best course of action. That’s not the same as ignoring the risks; we are navigating a changing world. Keeping a diversified portfolio that balances broad exposure with awareness of systemic threats seems like a sound approach.
If you’d like to talk about how best to invest in these febrile times, get in touch.