Inauguration Week: 7 Market Themes We’re Watching
Key Takeaways
- Market Themes Under Trump’s Second Term – Markets are optimistic about potential tax cuts and deregulation benefiting key sectors, but concerns persist about trade tensions, policy uncertainty, and market volatility.
- Potential for Near-term Volatility – Markets could experience heightened volatility in the near term as investors seek clarity on the administration’s policy details and their potential implications for global markets.
President Trump’s inauguration marks a significant political shift amid market and economic uncertainty. The stock market had rallied as much as 5.3% with dividends in the month following the November election, before giving up about half of those gains at the start of the year. As President Trump begins his second term, both Wall Street and Main Street are wondering what the next four years may bring.
Investors face a complex environment in 2025 with steady economic growth balanced against fewer Fed rate cuts and high valuations. This is one reason investors could be more sensitive to growth policies than in the past. So, while the president has already signed dozens of executive orders, many of the new administration’s policy details are still uncertain and much could change in the coming weeks. However, key areas will certainly include taxes, fiscal spending, trade, energy, and immigration – all of which could impact the economy.
Below, we explore seven areas that could affect investors:
1. Optimism Over Deregulation and Tax Cuts
There’s a sense of optimism among investors, with the administration expected to focus on deregulation and extending the tax cuts from the first Trump administration. These changes are seen as creating a more business-friendly environment, which could boost U.S. corporate profits and extend the stock market’s recent gains. Sectors such as finance, energy, and manufacturing are viewed as the most likely beneficiaries of these potential policy shifts.
With a new Trump administration and Republican control of Congress, it is likely that much of the Tax Cuts and Jobs Act will be extended beyond its 2025 expiration. The political details of how this makes its way through Congress are still being debated, but this means that tax rates will likely remain low for individuals and businesses. This includes a highest marginal rate of 37%, corporate tax rates of 21% or lower, a higher estate tax exemption, and more.
While taxes have a direct impact on households and companies, they do not always have a straightforward effect on the overall economy and stock market. Tax rates represent just one element affecting economic growth, with numerous exemptions and provisions available to lower effective rates.
Current tax levels remain below historical averages. Given increasing national debt levels, prudent individuals should consider the potential for future rate increases in their long-term planning.
2. The U.S. will likely continue running a deficit
Many economists and investors expect the federal debt to continue to grow. Tax cuts and other policies only worsen annual deficits. In 2024, the government spent $6.75 trillion resulting in a funding gap of $1.83 trillion, ballooning the national debt to over $36 trillion.
Neither party has made serious efforts to rein in the deficit in recent years, especially as the country has dealt with various crises such as the pandemic and inflation. That said, President Trump has established the Department of Government Efficiency (DOGE), a non-governmental agency tasked with identifying unnecessary spending from the federal government.
While many Americans would prefer the government to operate with a balanced budget (the last ones were in the late 1990s), it is unclear whether Washington or DOGE will be successful.
3. New tariffs could have a real economic impact
It’s important to remember that political rhetoric can differ from actual policies. Nowhere is this potentially more relevant than with trade. President Trump spoke on many occasions about his plans to impose a 10-20% tariff on all imported goods along with an additional 60% tariff on Chinese goods. More recently, he has discussed 25% tariffs on Canada and Mexico, saying on inauguration day that he will enact them on February 1. He also plans to establish an External Revenue Service to manage this tariff income.
During his first term, the Trump administration did in fact raise tariffs for many trading partners. This led to negotiations and trade deals including the United States-Mexico-Canada Agreement (USMCA) and the “Phase One” agreement with China. Many of these tariffs were then continued under President Biden.
The U.S. currently has the largest trade deficit in the world. As of November 2024, the U.S. imported $78.2 billion more than it exported. This is not necessarily a bad thing – it reflects the strength of the U.S. dollar and healthy consumer demand among Americans. However, this does mean that the country is effectively borrowing from the rest of the world.
Tariffs are a minimal source of government revenue, making up less than 2% of federal receipts each year. Many also worry that tariffs could contribute to inflationary pressures by raising the cost of imported goods entering the domestic market. From a political perspective, these concerns must be weighed against protecting sensitive intellectual property and preserving domestic manufacturing jobs.
4. Energy policy will promote drilling
Another key component of Trump’s agenda is the focus on energy security and dominance. He has already declared a national energy emergency and will create a National Energy Council to expand drilling in places like Alaska.
According to the U.S. Energy Information Administration, the U.S. has produced more crude oil than any nation at any time for the past six years. The U.S. is also the world’s biggest gas producer and exporter of liquefied natural gas.
Oil and gas drilling is naturally politically controversial. The Biden administration recently banned drilling in parts of the Pacific and Atlantic Oceans, the Northern Bering Sea, and part of the Gulf of Mexico. Some of these bans have already been reversed, and Trump’s Interior Secretary has already vowed to reverse the rest.
For markets, greater energy supply could mean more stable prices, especially as geopolitical conflicts continue to rage around the world. Energy prices are also a primary driver of overall inflation. Recent increases in oil and gasoline prices have pushed headline inflation higher than the Fed would like.
5. Immigration will affect the job market
Politicians and the news typically focus on undocumented immigrants, especially with Trump’s immediate declaration of a national emergency on the southern border. However, immigration policy changes could impact legal immigrants as well, especially highly skilled workers. A reduction in immigration could have implications for the labor market, particularly in areas where worker shortages are already a concern.
There is disagreement within the Republican party over visas for skilled foreign workers, and the H1B visa program which enables companies to sponsor these workers has been a particular point of contention. Recent jobs data show that there are still 1.2 million more job openings than unemployed individuals, so immigration policy could have a significant impact on the economy in the coming years.
6. Market Sentiment: Cautious Optimism
President Trump’s election victory in November led to a rally in many assets associated with the “Trump trade.” This refers to investments that benefit from the expected policies of the new administration, including lower individual and corporate taxes, tariffs, lighter regulation, and deficit spending in areas such as infrastructure.
This propelled markets for a time after the 2016 election as well. Other assets, including cryptocurrencies and artificial intelligence-related stocks, have also benefited. President Trump has named an “AI and crypto czar” who is expected to boost adoption of these technologies. This is one reason the price of Bitcoin has rallied above $100,000 since the election.
Despite investor enthusiasm, the stock market never moves up in a straight line, and this was also true during the first Trump administration. Investors should continue to stay balanced to benefit from both current market conditions and to protect their portfolios during periods of volatility.
7. The economy has grown under both parties
Whether you’re a Republican, Democrat or somewhere in-between, remember, when it comes to markets and the economy, presidents tend to receive too much credit and blame. History shows that economic growth and market rallies have occurred across both parties. This is because who occupies the White House is often less important than the decades-long business and market cycles that happen to be taking place.
Please, DO NOT let politics dictate your financial planning or investment decisions. In my 25-year investments career, I have rarely seen this work to anyone’s advantage. Political administrations come and go, so make sure your long-term game plan is not derailed.
So, while good policies do matter and can drive productivity and growth, there are many underlying factors that impact investors more than which party happens to be controlling Washington D.C.
Over the next four years, investors will be focused on the new administration’s policies and their effects on the economy and markets. For investors, it’s important to put politics aside to stay balanced and focus on long-term goals.
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which may contain security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website or Blog constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
Inauguration Week: 7 Market Themes We’re Watching
Inauguration Week: 7 Market Themes We’re Watching
Key Takeaways
President Trump’s inauguration marks a significant political shift amid market and economic uncertainty. The stock market had rallied as much as 5.3% with dividends in the month following the November election, before giving up about half of those gains at the start of the year. As President Trump begins his second term, both Wall Street and Main Street are wondering what the next four years may bring.
Investors face a complex environment in 2025 with steady economic growth balanced against fewer Fed rate cuts and high valuations. This is one reason investors could be more sensitive to growth policies than in the past. So, while the president has already signed dozens of executive orders, many of the new administration’s policy details are still uncertain and much could change in the coming weeks. However, key areas will certainly include taxes, fiscal spending, trade, energy, and immigration – all of which could impact the economy.
Below, we explore seven areas that could affect investors:
1. Optimism Over Deregulation and Tax Cuts
There’s a sense of optimism among investors, with the administration expected to focus on deregulation and extending the tax cuts from the first Trump administration. These changes are seen as creating a more business-friendly environment, which could boost U.S. corporate profits and extend the stock market’s recent gains. Sectors such as finance, energy, and manufacturing are viewed as the most likely beneficiaries of these potential policy shifts.
With a new Trump administration and Republican control of Congress, it is likely that much of the Tax Cuts and Jobs Act will be extended beyond its 2025 expiration. The political details of how this makes its way through Congress are still being debated, but this means that tax rates will likely remain low for individuals and businesses. This includes a highest marginal rate of 37%, corporate tax rates of 21% or lower, a higher estate tax exemption, and more.
While taxes have a direct impact on households and companies, they do not always have a straightforward effect on the overall economy and stock market. Tax rates represent just one element affecting economic growth, with numerous exemptions and provisions available to lower effective rates.
Current tax levels remain below historical averages. Given increasing national debt levels, prudent individuals should consider the potential for future rate increases in their long-term planning.
2. The U.S. will likely continue running a deficit
Many economists and investors expect the federal debt to continue to grow. Tax cuts and other policies only worsen annual deficits. In 2024, the government spent $6.75 trillion resulting in a funding gap of $1.83 trillion, ballooning the national debt to over $36 trillion.
Neither party has made serious efforts to rein in the deficit in recent years, especially as the country has dealt with various crises such as the pandemic and inflation. That said, President Trump has established the Department of Government Efficiency (DOGE), a non-governmental agency tasked with identifying unnecessary spending from the federal government.
While many Americans would prefer the government to operate with a balanced budget (the last ones were in the late 1990s), it is unclear whether Washington or DOGE will be successful.
3. New tariffs could have a real economic impact
It’s important to remember that political rhetoric can differ from actual policies. Nowhere is this potentially more relevant than with trade. President Trump spoke on many occasions about his plans to impose a 10-20% tariff on all imported goods along with an additional 60% tariff on Chinese goods. More recently, he has discussed 25% tariffs on Canada and Mexico, saying on inauguration day that he will enact them on February 1. He also plans to establish an External Revenue Service to manage this tariff income.
During his first term, the Trump administration did in fact raise tariffs for many trading partners. This led to negotiations and trade deals including the United States-Mexico-Canada Agreement (USMCA) and the “Phase One” agreement with China. Many of these tariffs were then continued under President Biden.
The U.S. currently has the largest trade deficit in the world. As of November 2024, the U.S. imported $78.2 billion more than it exported. This is not necessarily a bad thing – it reflects the strength of the U.S. dollar and healthy consumer demand among Americans. However, this does mean that the country is effectively borrowing from the rest of the world.
Tariffs are a minimal source of government revenue, making up less than 2% of federal receipts each year. Many also worry that tariffs could contribute to inflationary pressures by raising the cost of imported goods entering the domestic market. From a political perspective, these concerns must be weighed against protecting sensitive intellectual property and preserving domestic manufacturing jobs.
4. Energy policy will promote drilling
Another key component of Trump’s agenda is the focus on energy security and dominance. He has already declared a national energy emergency and will create a National Energy Council to expand drilling in places like Alaska.
According to the U.S. Energy Information Administration, the U.S. has produced more crude oil than any nation at any time for the past six years. The U.S. is also the world’s biggest gas producer and exporter of liquefied natural gas.
Oil and gas drilling is naturally politically controversial. The Biden administration recently banned drilling in parts of the Pacific and Atlantic Oceans, the Northern Bering Sea, and part of the Gulf of Mexico. Some of these bans have already been reversed, and Trump’s Interior Secretary has already vowed to reverse the rest.
For markets, greater energy supply could mean more stable prices, especially as geopolitical conflicts continue to rage around the world. Energy prices are also a primary driver of overall inflation. Recent increases in oil and gasoline prices have pushed headline inflation higher than the Fed would like.
5. Immigration will affect the job market
Politicians and the news typically focus on undocumented immigrants, especially with Trump’s immediate declaration of a national emergency on the southern border. However, immigration policy changes could impact legal immigrants as well, especially highly skilled workers. A reduction in immigration could have implications for the labor market, particularly in areas where worker shortages are already a concern.
There is disagreement within the Republican party over visas for skilled foreign workers, and the H1B visa program which enables companies to sponsor these workers has been a particular point of contention. Recent jobs data show that there are still 1.2 million more job openings than unemployed individuals, so immigration policy could have a significant impact on the economy in the coming years.
6. Market Sentiment: Cautious Optimism
President Trump’s election victory in November led to a rally in many assets associated with the “Trump trade.” This refers to investments that benefit from the expected policies of the new administration, including lower individual and corporate taxes, tariffs, lighter regulation, and deficit spending in areas such as infrastructure.
This propelled markets for a time after the 2016 election as well. Other assets, including cryptocurrencies and artificial intelligence-related stocks, have also benefited. President Trump has named an “AI and crypto czar” who is expected to boost adoption of these technologies. This is one reason the price of Bitcoin has rallied above $100,000 since the election.
Despite investor enthusiasm, the stock market never moves up in a straight line, and this was also true during the first Trump administration. Investors should continue to stay balanced to benefit from both current market conditions and to protect their portfolios during periods of volatility.
7. The economy has grown under both parties
Whether you’re a Republican, Democrat or somewhere in-between, remember, when it comes to markets and the economy, presidents tend to receive too much credit and blame. History shows that economic growth and market rallies have occurred across both parties. This is because who occupies the White House is often less important than the decades-long business and market cycles that happen to be taking place.
Please, DO NOT let politics dictate your financial planning or investment decisions. In my 25-year investments career, I have rarely seen this work to anyone’s advantage. Political administrations come and go, so make sure your long-term game plan is not derailed.
So, while good policies do matter and can drive productivity and growth, there are many underlying factors that impact investors more than which party happens to be controlling Washington D.C.
Over the next four years, investors will be focused on the new administration’s policies and their effects on the economy and markets. For investors, it’s important to put politics aside to stay balanced and focus on long-term goals.
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which may contain security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website or Blog constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
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