With Donald Trump re-elected as the 47th President of the United States, investors are closely examining how his policies could impact the economy and their portfolios. Early responses in global stock markets suggest that investors anticipate a Trump presidency, coupled with a Republican Senate, will bring much of what he promised on the campaign trail—a business-friendly, pro-growth, low-regulation economy. At the same time, despite these pro-business headlines, Trump’s policies may carry unexpected effects that savvy investors should consider. While his low-tax, pro-business stance may create growth opportunities, it could also introduce hidden risks that aren’t immediately apparent.  At Glassman Wealth, we take our role in analyzing these shifts seriously. Managing over $2 billion in assets (as of 9/30/24), in assets, we’re dedicated to providing clients with advanced thinking and thoughtful preparation in response to potential economic shifts brought on by new policies. Here’s what we’re watching and how we think investors can adjust.  Let’s dive into what Trump’s key policies could mean for your investments.   

1. Tariffs and Trade Wars: A Double-Edged Sword

Trump’s aggressive tariff policies aim to boost domestic competitiveness by making foreign goods more expensive. While this seems like good news for U.S. manufacturers, many industries rely on imported parts and materials. Higher tariffs on these components could disrupt supply chains and increase production costs. It also remains to be seen whether tariffs will be imposed on specific goods and countries or whether these taxes would be implemented across the board. The difference in economic effects in how tariffs are implemented could be immense.  Moreover, tariffs could provoke retaliation from trading partners, leading to a potential trade war that would hinder U.S. companies looking to export goods. A 10% tariff on imports could easily be met with equivalent tariffs on U.S. exports, reducing competitiveness and limiting access to overseas markets.   While bringing jobs back to America sounds beneficial, these new wages could also drive up prices for homes, goods, and services—putting upward pressure on inflation.  Last, while the tariffs could hurt these companies, currencies can cushion the impact. Take a post-election peek at the value of the dollar vs. the tariffed countries. When their currency declines against the dollar, they can more easily lower their prices in local terms to absorb the costs of Trump’s tariffs. 

Glassman Pro Tip:   

While America-First policies may benefit some domestic industries, the broader impact of trade disputes could lead to volatility. At Glassman Wealth, we’ll watch closely how supply chains may be affected and see how this will affect large global companies. Look to smaller company exposure. With less exposure to global markets, smaller companies may see a boost from a growing economy, with limited impact from tariffs. For our clients, we maintain strategic exposure to small companies, leaning mostly on active management.  

2. Expanding Tax Cuts: Immediate Gains, Long-Term Risks?

Trump’s tax plan goes beyond corporate cuts. His agenda includes extending the 2017 personal tax cuts (set to expire after 2025) and expanding relief measures, like cuts on tip income and overtime pay, along with increased deductions for small businesses.   While these cuts could encourage consumer spending and business investment, they come with concerns about a growing federal deficit. Higher growth may come with higher inflation, putting upward pressure on interest rates, which could broadly offset the benefits of tax relief over time.  

Glassman Pro Tip:   

Tax cuts may create near-term opportunities for growth, but it’s essential to consider potential longer-term risks, such as inflation and rising borrowing costs. While our clients’ portfolios will continue to include index funds that look to replicate the S&P 500, other funds emphasize companies with strong fundamentals—those with solid sales growth, cash flow, and shareholder-friendly practices—that may be better positioned to weather market volatility over the years to come. Last, municipal bonds may face headwinds as lower tax rates would decrease demand at the same time as rising rates present interest rate risk.  

3. Bonds and Interest Rates: Balancing Risk and Return

In a Trump presidency, policies geared toward higher growth, tax cuts, and infrastructure spending could drive higher inflation and elevated interest rates. For investors in long-duration, high-quality bonds like long-term Treasuries, this may spell challenges, as rising rates typically put downward pressure on bond prices.  However, if Trump’s policies provide a tailwind for economic growth, corporate bonds may benefit, especially in sectors positioned to capitalize on deregulation and tax cuts. Meanwhile, shorter-term bonds may offer some protection against interest rate risk, as their shorter durations make them less sensitive to rate increases. 

Glassman Pro Tip:   

At Glassman Wealth, we continue to favor an often-underrepresented asset class: short-term, high-yield bonds. These lower-quality bonds carry higher risk, but with average maturities under two years, they offer reduced exposure to interest rate risk and potentially lower credit risk than typical high yield bond exposure. This asset class could provide attractive yields while balancing the potential risks of an overheated Trump economy.  

4. Energy Independence: The Unexpected Risks of Deregulation

Trump’s focus on energy independence (“Drill baby drill!”) is likely to spur deregulation in the oil and gas industry, opening up new drilling opportunities. While this initially appears to be a win for energy companies, an oversupply of oil and gas could drive prices lower, hurting the profitability of those very firms.  Additionally, while Trump’s drilling policies could affect one variable in inflation measures, with energy accounting for less than 10% of the Consumer Price Index, this may not change the course of what we expect to be a higher-for-longer inflationary environment.  A few things to keep in mind:    – Despite Trump’s pro-energy stance during his first term, energy stocks vastly underperformed the broad U.S. stock market.  – Trump has another incentive to drill. Lower oil prices hurt the economies of some oil-rich dictatorships, which could align with his broader geopolitical goals. 

Glassman Pro Tip:   

Timing is everything, especially given the significant outperformance of U.S. energy companies during Biden’s term. With energy stocks trading at high valuations, under Trump, the obvious trade might not be energy stocks—highlighting the importance of a cautious, data-driven approach to any investment decision.   

5. Housing and First-Time Homebuyers: The Challenge of Rising Costs

A Trump presidency, with policies that boost growth through tax cuts and infrastructure spending, could also contribute to higher inflation and long-term interest rates. While these factors may support a growing economy, they could pose significant challenges for first-time homebuyers.  Higher interest rates increase mortgage costs, making it more expensive for buyers to finance a home. Coupled with inflation driving up home prices, this creates a double burden for first-time buyers, as monthly payments rise and homes appreciate faster than wages. Additionally, existing homeowners with mortgages below 4% may be reluctant to sell due to the prospect of higher rates on a new loan. This could continue to limit housing inventory and keep prices elevated.

Glassman Pro Tip:   

In this environment, prospective homebuyers might consider alternative financing options or delay purchases until rates stabilize. While this may get more families into homes, creative financing may increase the risk to housing prices in the future. Rising costs could also prompt Washington to explore incentives aimed at increasing the housing supply, though any initiatives will likely take time to impact the market.  

6. Biases vs. Market Realities: Expect the Unexpected

It’s easy to assume that certain sectors will thrive under specific administrations, but the market often has a way of defying expectations. For instance, many expected energy stocks to outperform under Trump’s first term, yet they lagged significantly. Conversely, energy stocks surged under the Biden administration, when many had anticipated challenges for traditional energy. See our piece on The Worst Possible Political Trade: When the Obvious Bet Backfires. 

Glassman Pro Tip:   

Avoid making oversized bets based solely on political expectations. Instead, focus on a balanced, long-term strategy that accounts for unexpected market dynamics. By managing biases and maintaining a diversified approach, we aim to keep portfolios resilient regardless of political changes.  

Navigating the Trump Economy with Glassman Wealth 

What may matter more than Trump’s drilling, tariffs, and tax cuts that make headlines will be their impact on the macroeconomic triggers that move the market. Follow the dominoes…lower taxes, a deregulated economy, and ongoing federal spending will likely lead to higher deficits and ongoing inflation concerns. Higher inflation may lead to higher interest rates, the result may be a stronger dollar versus other currencies. This tends to push oil prices lower, make exports more expensive to foreign buyers, and cause those on holiday to choose other, less-expensive countries to visit.  In this environment, we see potential opportunities for small companies that, as long as they can withstand higher interest rates, could benefit from lower taxes and fewer regulations, while retirees may find appealing income opportunities in higher-yielding investments.  At Glassman Wealth, we believe in helping clients prepare for and navigate these shifts with clear, data-driven strategies. Whether it’s managing portfolios to reduce risk from market volatility or identifying growth opportunities in a dynamic economic environment, our goal is to empower you to make informed decisions that align with your financial goals. Ready to take the next step? Contact us today to schedule a consultation and explore how our tailored investment strategies can help you stay ahead in this evolving economic landscape.