Countdown to Trump 2.0: Experts on inauguration’s market impact

Various financial market experts weigh-in on global expectations leading up to and following US President-elect Donald Trump’s inauguration.

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• Experts weigh-in on global market expectations leading up to and following US President-elect Donald Trump's inauguration

• Escala Partners remains of the view the US is a preferred environment for client capital in 2025 

• ClearBridge Investments believes Trump's pro-business approach could once again buoy capital spending, M&A and other forms of investment

Donald Trump's second US presidency is almost upon us, with his inauguration ceremony set to kick off at midday Washington time on January 20 (4am AEDT on January 21).

Trump is only the second president to be elected to two non-consecutive terms – the first was Grover Cleveland in the late 1800s.

While forecasting the future is a risky business, Stockhead asked various experts to share their insights on what investors might expect leading up to and following the 45th US President's return as the 47th.

Most plans leaked prior but 'changes could be quite radical'

Financial planning firm Escala Partners executive vice chairman Chris Selby said Trump 2.0 post inauguration was like the Australian Budget, with most plans leaked or communicated prior.

"How the policies are legislated and executed takes time and will determine the administrations' successes or failures," he said.

Selby said the incoming Trump administration would need time to establish its internal processes and operating plans.

"What is clear is that Trump's nominated leadership team wants to execute along non-traditional lines," he said.

"These are exceptional individuals, many highly successful in their private enterprises.

"The changes could be quite radical versus how previous administrations have executed their mandates."

Selby said the idea of "big government" does not seem in the plan for Trump and how defensive each division is to changes will be worth watching.

"We know President Trump is a negotiator so it’s fair to assume outcomes may differ from the initial positions," he said.

"Fiscal and monetary policies will change and how that favours one asset class over another is important."

Selby said markets have already begun trying to calibrate changes to various sectors and noted the so-called 'Trump Bump' in late 2024 – following the president-elect's win – had settled down.

"Escala has remained of the view the US is a preferred environment for client capital," he said.

Selby said on the geopolitical front, it’s clear a shift was occurring that was favourable to business and growth policies.

"Energy, selective resources, infrastructure and other thematics are looking appealing," he said.

Selby said investors must understand globalisation was taking a backseat to nationalism and that set and forget was no longer a viable investment option.

Furthermore, he said Australia is somewhat following the global shift to the right or 'conservatism' versus liberalism.

"It’s a shift that is occurring in multiple G20 countries and increasingly in Australia.

He said volatility will likely be a by-product of the shifts.

"That means a change in approach to risk themes such as energy, mining, property, education, immigration," he said.

Selby said he remained positive about 2025 and the opportunities for investors, particularly in the US.

"I hope you have your seatbelts on, 2025 is going to be memorable road trip," he said.

'Directionally consistent with 2016'

Franklin Templeton’s specialist investment managers have also expressed their views on what could be expected following Trump's inauguration.

"The initial impacts are likely to be directionally consistent with 2016, albeit to a lesser degree given today’s more mature economic backdrop and lofty embedded expectations," ClearBridge Investments head of economic and market strategy Jeff Schulze said.

"Trump’s pro-business approach could once again rekindle animal spirits and buoy capital spending, M&A and other forms of investment.

"For example, the National Federation of Independent Business Small Business Optimism Index jumped by 11.7 points during the fourth quarter of 2016, the largest three-month bounce since 1980."

Schulze said when combined with a more favourable corporate and individual tax regime, along with a lighter regulatory touch, the outlook for corporate profits appeared healthy.

However, he said not all of Trump’s agenda was market-friendly and potential headwinds exist, notably from the prospect of increased tariffs, reduced immigration and potential for higher long-term interest rates.

"Various tailwinds have so far been viewed as outweighing the potential headwinds from an economic and corporate profits perspective, but ultimately the specific policy details will have the most influence on the trajectory of earnings and economic growth," he said.

"A resilient economy – that could be further bolstered by pro-growth policies – should prove beneficial for equity investors, given the strong linkage between the economy and corporate profits."

Select tariff regimes likely

Western Asset chief investment officer Michael Buchanan said market expectations were that the Trump administration would move forward with select tariff regimes, focusing on key industries, rather than across-the-board tariffs.

"Should the 60% China/10% rest-of-world tariff plan which president-elect Trump campaigned on come into fruition then the broad macro impact would be higher relative growth and inflation in the US vis-à-vis the rest of the world," Buchanan said.

"In essence, this appears to be the US desiring a larger slice of a smaller pie.

"Counter tariffs would magnify the growth downside whereas increased US investment and production would lessen the impact."

Buchanan said currently, markets were adjusting the probabilities between the broad and more narrow tariff regimes.

"Many of Trump’s desired policy goals such as low inflation, low interest rates, strong growth, buoyant equity markets and a weak dollar sit uneasily with a more draconian tariff regime," he said.

"Again, this lends support to a more nuanced regime.

"The journey toward whichever outcome prevails will see heightened market volatility and uncertainty."

'Transatlantic relationship may suffer from rising economic tensions'

Head of Amundi Investment Institute and chief strategist Monica Defend reckons President-elect Trump may prioritise tariff and immigration policies over tax cuts, as these could be implemented through executive orders without congressional approval.

"The sequence of policy implementation will be key to assessing the growth and inflation impact," he said.

Defend said tariffs would act as a negative supply shock to the economy, increasing stagflation risk – the magnitude of which will depend on the eventual level of tariffs.

"Full implementation of Trump’s far-reaching tariff proposal will leave no winners in a world of heightened trade uncertainty and protectionism," she said.

"The transatlantic relationship may suffer from rising economic tensions, which could spill over into other areas of cooperation.

"Asia could be the hardest hit, with China bearing the brunt."

However, Defend said Beijing had options to cushion the shock, through negotiation – for example towards areas where the US has a strong dependency such as pharmaceutical components and rare earth elements – currency depreciation, and trade re-routing.

"The large and domestically-oriented economies of India and Indonesia are better insulated," she said.

Defend said concerns about Trump policies leading to higher inflation and a more hawkish US Federal Reserve would pose risks to fixed income investments, while supporting the dollar in the short term.

"US equities will be buffeted by conflicting forces, but deregulation and industrial policies under Trump 2.0 will likely benefit sectors such as banks and small/mid-caps."

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.