How President-Elect Donald Trump’s Policies Might Shape the Future of U.S. Markets
As President-Elect Donald Trump prepares to return to office, the media is turning their attention to what his second term might mean for the U.S. economy, markets, and regulatory environment. While there are numerous factors that can shape the future, some emerging trends are beginning to take shape. Here’s a look at what we might expect moving forward.
A Strong Economy, But Inflationary Pressures Ahead
Trump enters office with the U.S. economy looking fundamentally strong, as the economy posted an annual growth rate of 2.8% from July through September, and the unemployment rate stands at a low 4.1%, well below historic averages. (1)
The Federal Reserve's current confidence in slowing inflation is also noteworthy, as it cut its benchmark interest rate in September and in early November to help guide inflation back toward its 2% target. (1)
However, not all forecasts are optimistic about the economic trajectory. The Peterson Institute for International Economics projected that some of President-Elect Trump’s proposed policies could lead to a reduction in U.S. gross domestic product, or the total output of goods and services, by as much as $6.4 trillion through 2028.
Peterson also estimated that Trump’s proposals would drive prices higher within two years: Inflation, which was otherwise predicted to come in at 1.9% in 2026, would instead jump to between 6% and 9.3%. (1)
President-Elect Donald Trump’s Sharper Emphasis on Raising Tariffs
One of the most significant elements of Trump’s economic agenda was his focus on trade imbalances, particularly with China. He aims to continue this approach with a sharper emphasis on raising tariffs, including a proposed 60% tariff on Chinese imports and a broader 10% to 20% tariff on other foreign goods. (1)
While tariffs are designed to address trade imbalances and encourage foreign nations to make concessions, they may increase costs for consumers, as American companies typically pay these tariffs and often pass the additional expenses to their customers via higher prices. (1)
According to Kimberly Clausing and Mary Lovely from the Peterson Institute, the proposed tariffs may result in an after-tax financial burden of approximately $2,600 annually for the typical American household. (1)
The Current Stock Market Outlook
Stock market performance is influenced by many factors, and historically, U.S. markets have tended to rise regardless of which political party controls the White House. That said, Republican policies under Trump’s administration could cause significant shifts beneath the surface. (3)
Trump's promise of less regulation and lower taxes for large corporations, increased oil production, and tough immigration policies to stronger growth and inflation, viewed as positive for equities. Sectors such as banks, technology, defense and fossil fuels are likely to benefit. Trump’s plan to reduce the corporate tax rate to 15% could potentially raise S&P 500 earnings by around 4%, according to Goldman Sachs. (4)
It is not yet clear how much of Trump’s tax cut plan will make it through Congress, and other factors, such as protectionist trade policies and the stance on China, may have the potential to increase costs, reduce profitability, and negatively affect multinational companies. (4)
On the global stage, a strong dollar, rising U.S. interest rates, and tensions over trade could benefit defensive sectors but may prove challenging for multinational companies with significant exposure to U.S. markets. Sectors particularly vulnerable to tariff changes, like semiconductors, automobiles, and clean energy, could see heightened volatility in the coming years. (4)
Closing Thoughts
As the U.S. moves into another phase of leadership under President-Elect Donald Trump, the economic outlook is filled with both opportunities and challenges. While the U.S. economy remains fundamentally strong, ongoing inflationary pressures, shifts in trade policy, and potential changes to taxation and regulation will all play a significant role in shaping future outcomes.
Article Sources:
(1) Wiseman, Paul. “Frustrated Americans await the economic changes they voted for with Trump.” AP News, November 9, 2024.
(2) Choe, Stan. “Stocks and bitcoin jump after Trump’s victory. So do worries about inflation as Dow surges 1,500.” AP News, November 6, 2024.
(3) Choe, Stan. “Elections have less impact on your 401(k) than you might think.” AP News, October 3, 2024.
(4) “What does Trump’s 2024 election win mean for global markets?” Reuters, November 6, 2024.