Investing under Trump: How should you allocate your portfolio in 2025?

Financial markets have the potential to perform well in 2025, though there are many differences between now and President Donald Trump’s first term.

At times like today, amid a confluence of economic, political, and social unknowns, data is especially important to bring clarity to a system that otherwise appears quite chaotic.

We cannot expect capital markets to behave the way they did in Trump’s first term.Credit: NYT

Across many different datasets that we have analysed, from future risks priced by options and derivative markets globally to historical periods similar to today identified by pattern recognition algorithms, we are optimistic about capital markets heading into the new year.

We expect the downside risk to capital markets and recession risk to be muted, enabling investors to source equity risk premiums and fixed income risk premiums in relative safety.

But, to no surprise, potential policy changes under a second administration by Trump will be a significant factor determining capital market performance.

Because today’s starting point and today’s starting conditions are very different from the starting conditions when Trump was first elected president in 2016, we absolutely cannot expect capital markets to behave the same way they did back in 2017. This would make investing far too easy.

Global equities

Where are assets likely to perform similarly to Trump’s first year as president and where could performance diverge this time around? We all know global equities performed exceptionally well when Trump was elected in 2016. Ironically, despite tariffs and other protectionist policies, non-US equities in fact outperformed US equities.

Unlike today, non-US countries were showing clear signs then of strong economic rebound. So while we expect equities in general to perform well in the medium term, coming into the new year, we expect US equities to lead the pack and to be a more attractive place to source equity risk premium.

Another point of departure is that we also expect lower-volatility, higher-stability stocks to shine as we are much later in the business cycle today than we were in 2016.

Fixed income

Interest rate volatility was very high during Trump’s first year as president, and we expect the same to unfold in 2025. More importantly, we also expect there to be greater upward pressure to interest rates today than previously because his pro-growth policies represent a much greater and significant threat to inflation this time around.

It is much easier to ignite inflation when the memory of rising prices is still fresh in consumer’s minds, just like it is today. We believe the risk to higher rates is more severe here in the US than outside the US, given lacklustre growth we expect in other regions.

Currencies

Lastly, on currencies, unlike 2017, where the US dollar rally lost steam, we expect dollar strength to continue throughout most of 2025 as economic growth outside the US is not the bright spot that it was in 2017.

Furthermore, the US administration’s pro-growth policies will probably delay interest rate cuts and accommodation by the Federal Reserve, lending further support to a strong US dollar.

So while Trump is back in the White House, you probably will not see an exact repeat of capital market performance.

Understanding the points of similarity and understanding the points of departure should prove quite valuable as investors navigate where best to invest in 2025.

Ashwin Alankar is the head of global asset allocation and a portfolio manager at Janus Henderson Investors.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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