Strategies for Investing Under the New Administration: Insights and Opportunities

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With Donald Trump’s re-election as President of the United States, debates have reignited about the potential impact on markets, trade, and the global economy. The new administration has promised deregulation, tax cuts and a focus on energy independence.

Maneuvering in this environment requires a clear understanding of key sectors and strategic adjustments in a portfolio. Investors face a unique landscape of opportunities and risks. The following is a detailed examination of what to expect and suggestions on how to approach investment decisions.

1. The U.S. dollar and other currencies

The new administration's policies are expected to bolster the U.S. dollar, with anticipated inflationary growth and elevated interest rates strengthening the dollar by as much as 3%.¹ Investors in currency markets should consider the implications of a strong dollar, particularly for emerging markets and multinational corporations reliant on exports.

A second Trump administration could also foster a pro-business regulatory environment that positions bitcoin as a strategic national asset, potentially elevating its role as a currency. Advancing a plan for a U.S. bitcoin reserve could potentially enhance its economic and geopolitical significance and encourage innovation in crypto investment tools.²

2. Stocks: Opportunities and caution

In the past, U.S. equities have responded favorably to the incoming president's business policies. The banking, defense, and energy sectors are expected to grow with reduced regulation and corporate tax incentives. However, multinational firms, especially those in clean energy and technology, could face challenges from tariffs and increased trade friction.³

3. Bonds: Rising yields and risks

The bond market has sent a clear warning with its recent rise in yields, reflecting concerns over the potential impact of Trump’s policy priorities on the federal deficit. Morningstar⁴ reports that while the bond market may tolerate an extension of the 2017 tax cuts set to expire next year, additional tax cuts and spending promises could face greater scrutiny. If enacted without corresponding measures to reduce the deficit, these policies could prompt higher interest rates, creating a significant headwind for equities. Higher rates tend to dampen stock market performance, which would counteract any positive effects of favorable tax and regulatory policies.

The role of "bond vigilantes," investors enforcing fiscal discipline through the bond market, remains critical. They are likely to push back against costly proposals, including eliminating taxes on tips or Social Security unless they are offset by spending cuts or revenue increases. Although tariffs may provide some additional revenue, their contribution would likely fall far short of covering the proposed tax cuts, leaving the bond market sensitive to any signs of fiscal imprudence.

4. Commodities: Energy expansion, agricultural uncertainty

The new administration introduces both opportunities and challenges, particularly in the commodities market. Rising energy prices, such as oil and natural gas, could offer medium-term gains, while gold may continue its upward trajectory amid economic uncertainty. Industrial metals, poised for long-term growth, will remain sensitive to short-term demand fluctuations. President-elect Trump’s pro-fossil fuel policies are expected to boost U.S. oil and gas production, benefiting companies looking to expand drilling in regions including the Gulf of Mexico and Alaska. However, tariff disputes could disrupt global commodity trade, especially in agriculture and energy sectors. These higher tariffs could lead to price increases on imports, fueling inflation.

5. Emerging markets

The election of Donald Trump as U.S. president brings heightened uncertainty and a more unpredictable outlook for emerging markets (EMs). Investor sentiment toward EMs is likely to remain cautious in the near term as markets assess the potential impact of Trump’s policies, particularly those related to tariffs. Expectations of increased tariffs on imported goods from EMs, such as a proposed 60% tariff on Chinese imports, could significantly disrupt trade flows and hurt China’s economic growth.⁵ This, in turn, may influence other nations to adopt similar protectionist measures, further straining global trade dynamics.

Since Trump’s first term in 2016, many Chinese companies have sought to mitigate tariff risks by diversifying exports to other regions, such as to the rest of Asia, with these shifts partly reflected in EM valuations. However, non-Chinese companies, like South Korean battery makers, face additional risks, including potential curtailment of benefits under the Inflation Reduction Act. These evolving challenges underline the importance of proactive portfolio management and an awareness of the shifting operating landscape for companies across emerging markets.

6. Technology: The easing of antitrust measures and trade risks

Technology stocks flourished during Trump’s first term, buoyed by tax cuts and a lenient regulatory environment. This trend is expected to continue, particularly with a potential rollback of antitrust measures that previously constrained tech giants like Google, Apple, and Amazon. However, the sector faces challenges from trade policies that would target imported semiconductors and international supply chains.

7. Healthcare

Healthcare companies could experience reduced regulatory hurdles, which would benefit insurers and drugmakers. However, potential changes to the Affordable Care Act and Medicare could create unpredictability, as changes to subsidies could impact coverage, particularly for lower-income groups.

8. Retail: Balancing tax cuts with tariff pressures

Retailers stand to gain from Trump’s proposed extension of tax cuts, which could enhance consumer spending. However, the proposed increased tariffs on Chinese goods present a significant risk, as those costs are usually passed on to consumers.

9. Auto industry: Deregulation meets tariffs

Auto manufacturers may benefit from relaxed emissions regulations, enabling them to sell larger, more profitable vehicles. Yet, again, proposed tariffs on Mexican imports could disrupt supply chains and raise production costs. Companies like General Motors and Ford may find themselves navigating a challenging balance between domestic expansion and international competitiveness.

10. Financial services: Regulation and growth potential

Bank stocks are poised to gain from economic growth and potentially lighter financial regulations. Regional banks and investment firms could also benefit from increased deal-making and small business expansion. However, overexposure to speculative sectors would elevate risk and must be taken into account.

Investors could face a dynamic landscape under the new administration, marked by deregulation, fiscal incentives, and trade tensions, with opportunities in industries including energy, financial, and technology. This must be balanced against risks like inflation and global market pressures. Maintaining a long-term perspective is crucial, and it is advised to stay with that plan and strategy. Then, make strategic tweaks rather than wholesale changes, adjusting for evolving conditions. Diversification, sector-specific strategies, and alignment with personal goals and risk tolerance are key. A continued conversation with a financial advisor ensures investors remain informed, adaptive, and positioned to mitigate risk while capitalizing on opportunities.

Colleen Kelleher Sorrentino, CFA® is with Kelleher Financial Advisors, a New York-based investment advisor. Stacey Mankoff is with The Mankoff Company LLC, a New York-based marketing firm serving the financial industry.

The information and opinions set forth herein have been prepared by Kelleher Financial Advisors, LLC (“KFA”), a U.S. Securities and Exchange Commission registered investment adviser and an affiliate of Wall Street Access, Member NYSE, FINRA, and Member SIPC. Registration does not imply a certain level of skill or training. Although the information upon which this material is based has been obtained from sources which we believe to be reliable, we do not warrant its completeness or accuracy. Any opinion or estimates constitute our best judgment as of this date and are subject to change without notice. This article is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any security or investment.

1 https://www.reuters.com/markets/whats-stake-global-markets-trump-presidency-2024-11-06

2 https://www.fool.com/investing/2024/12/01/heres-how-a-trump-presidency-could-affect-cryptocu/

3 https://am.jpmorgan.com/us/en/asset-management/institutional/insights/portfolio-insights/strategy-report/parsing-the-market-impact-of-the-trump-economic-agenda/

4 https://www.morningstar.com/news/marketwatch/2024111227/trump-is-the-most-pro-stock-market-president-america-has-ever-had-heres-why-its-not-even-close

5 https://franklintempletonprod.widen.net/content/u6veg5eno4/pdf/global-emerging-markets-insights-1124.pdf

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