Fund managers expect Donald Trump’s policy agenda to roil financial markets. Policies such as aggressive tariffs are “likely to disrupt the economic equilibrium and thus increase macro uncertainty and market volatility”, according to Raphael Olszyna-Marzys, international economist at J. Safra Sarasin Sustainable Asset Management. “In fact, some of his proposals are explicitly designed to shake up the status quo.”
With this comes uncertainty, particularly on issues such as cryptocurrencies, the debt ceiling and monetary policy, which all “pose significant risks,” Olszyna-Marzys said. “The uncertainty lies not only in the magnitude of these measures but also in their sequencing. As such, the timing, scale and order of implementation will be critical.”
Finally: inflation. Trump’s proposals, from tariffs to a clamp down on immigration, could increase prices and unsettle equity and bond markets, said Tim Murray, capital market strategist at T. Rowe Price. “An inflation resurgence could lead Federal Reserve officials to stop cutting – or even raise rates. Such a scenario could generate significant market volatility.”
Below, fund managers outline their expectations for Trump’s second term and explain how they are positioned.
Amundi: Volatility is to be expected but we like the US
Although investors are aware of Trump’s agenda, there are still plenty of uncertainties regarding timing, sizing and the response of other countries, said Amelie Derambure, senior multi-asset portfolio manager at Amundi. “There could be some gaps between statements and outcomes as we know Trump is willing to use tariffs as a negotiation tool with other countries.
“Volatility is to be expected as market participants will have to navigate a difficult environment, with various policies having diverging effects on major economic data (inflation, growth, public deficits).”
Yet despite this uncertainty, markets are positioned for a relatively benign scenario, with growth in the US at the expense of the rest of the world, a strong dollar, and a positive environment for businesses with tax cuts and deregulation.
“A lot is already in the price but we believe that US growth resilience and the Federal Reserve cutting rates (even very moderately) should be enough to push US equities higher,” Derambure said.
Fidelity: The Fed won’t cut rates but we prefer the US to Europe
Becky Qin, a multi-asset portfolio manager at Fidelity International, also has a positive outlook for US equities. “The US economy is already running at a healthy rate, so the potential for less regulation, lower taxes and other business-friendly policies is a further tailwind for US equities earnings,” she said.
However, tariffs are likely to have an inflationary impact, stopping the Fed from cutting rates. “We now expect no interest rate cuts this year, which should challenge the outlook for equity multiples,” she said.
Fidelity Global Multi Asset Income is taking on moderate risk, positioning for stronger economic growth in the US and veering away from Europe. “We like US financials, which should perform well in a higher-for-longer interest rate environment accompanied by likely deregulation,” she said. The fund is also holding energy stocks as a hedge against inflation.
Premier Miton: The situation is more nuanced than ‘Trump trades’ suggest
Premier Miton expects US companies to benefit from healthy profit growth and business-friendly policies, such as deregulation. However, the situation is more nuanced than the performance of ‘Trump trade’ stocks shortly after the election might suggest, said Alex Knox, manager of Premier Miton US Smaller Companies.
“The financials sector, for example, includes both beneficiaries of increased M&A activity on lighter regulation (US regional banks, merchant banks) and those whose value depends more on the direction of future interest rates. The former may have further to go if loan growth accelerates.
“Whilst industrials may look fairly valued in anticipation of a manufacturing renaissance, wise stock selection will be key to determining winners or losers in this environment.”
Ultimately, Knox expects US exceptionalism to continue this year and anticipates performance will “broaden out as overall profit growth begins to compare more favourably with that of the Magnificent Seven.”
Artemis: There is less uncertainty now
Cormac Weldon, head of US equities at Artemis, believes that before the election there was even more uncertainty than there is today.
“When we spoke to companies last summer many were putting off making capital investment decisions because range of outcomes around the election was so wide: taxes, tariffs and deregulation were significant unknowns. Now the election is out of the way, we think we will see capital investment growing going forward,” he said.
Weldon is optimistic about deregulation. “If they are genuinely going to go in and cut as much red tape as they are claiming publicly it could be very good for small businesses very quickly.”
JP Morgan Asset Management: Small-caps could disappoint
Although many experts anticipate a boon for US small-caps during Trump’s second term, Hugh Gimber, global market strategist at JP Morgan Asset Management, warned the asset class could suffer in a higher-for-longer rate environment.
“Despite stronger growth expectations providing support, the rate outlook holds the key. Smaller companies tend to be much more interest-rate sensitive than large-caps and therefore the expectation the Fed will now be more cautious with further rate cuts is likely to create more pressure on companies with larger debt burdens and weaker balance sheets.”
Gimber thinks higher quality, more resilient companies are a better bet to weather the “twists and turns” of the next four years.