What Donald Trump’s policies could mean for US equities

On one hand, many people expect there is a difference between what he says and what he actually does. One the other, markets hate uncertainty and the noise around Trump has created that.

Mark Harries, chief investment officer at Square Mile Investment Consulting and Research, says the initial market reaction to the US presidential election result was fairly predictable, with US equities rallying in the immediate aftermath.  

However, looking further out, it might be reasonable to expect Trump’s policy roadmap, with a lighter touch to regulation and greater fiscal stimulus, to provide momentum to growth and act as a continued tailwind to US equities. 

We think Trump gives a high weight to the equity markets as an indicator of his policies

Joost van Leenders, Van Lanschot Kempen

Harries adds: “What remains to be seen is the inflationary impact of some of Trump’s policies and what this might mean for the trajectory of interest rates and those areas of the market that are more interest rate sensitive.

“This may cause some short-term volatility, although Trump has always been very clear about what we can expect on his return to the White House, so the risk of blindsiding markets is limited.  

“In addition, and while he would never admit it, Trump inherits an economy that looks reasonably robust. This all points to a relatively positive outlook for US equities over the longer term.”

Should Trump not follow through with policies to match his strongest campaign rhetoric, it should not be a surprise, according to fund managers.

Ben Conway, chief investment officer at Hawksmoor Fund Managers, says: “Rhetoric during election campaigns, is often not matched by action once in office. We see that time and time again through history with all elections.  

“Unmatched rhetoric could work both ways. Many suspect Trump’s utterances on tariffs could have been a bargaining tactic to induce other countries to reduce tariffs in trade with the US. On the other hand, will Trump really be softer on bank regulation? That said, it is difficult to know what markets have really priced in.”

And herein lies the issue: Trump’s pre-election policy stances in some areas are so strong that any deviation from expectations could result in high levels of sector-specific volatility.

Joost van Leenders, senior investment strategist at Van Lanschot Kempen, says: “We think Trump gives a high weight to the equity markets as an indicator of his policies. We therefore believe that his administration will avoid any policies that may have a negative impact on equities directly. 

“The main risk, as mentioned above, could come via higher inflation, especially if combined with the administration undermining the independence of the Federal Reserve in any way. We see bigger risks for non-US equities from aggressive trade policies.”