What will Trump mean for your investments?
Love him or loathe him, Donald Trump’s decisive victory in the US election was generally well received in financial markets. This was amplified when Trump nominated Wall Street financier Scott Bessent to lead the US Treasury Department last week. On Monday, share and bond prices surged both in the US and UK, leading to headlines such as ‘The Bessent Bounce’.
This was reassuring news for investors around the world. Bessent’s appointment also means that Trump’s team is almost complete for when he officially takes office, for the second time, on 20 January 2025.
While a series of contentious appointments have caused alarm in many quarters, Bessent is seen as steadying influence. His role is one of the most influential in government, with wide-ranging scope. It is thought that he might dilute some of Trump’s more extreme policies.
How are UK investors impacted by Trump?
Investors of all types typically have portfolios made up of global investments. This ensures sufficient diversity and spread of risk. As the US stock market accounts for more than 60 per cent of the global market, it has huge importance to all. The US heavily influences interest rates around the world and exerts control over international trade via tariffs. As a superpower, it is also a key player in resolving international conflicts, and everyone’s waiting to see how Trump handles the Ukraine situation.
For this reason, UK investment managers will be constantly analysing unfolding events and how they may impact client portfolios. For example, they will be extremely sensitive to the strength of the US Dollar.
‘Exposure to global investments also brings about currency exposure,’ explains Paul Willans, Managing Director of AJB Wealth in Hampshire. ‘With the US Dollar benefitting from Trump’s protectionist and potentially inflationist stance, UK investors may also benefit from a relative weakening in the value of Sterling against the Dollar.’
A stronger US Dollar is beneficial to UK investors holding Dollar-denominated assets, as, like a following tide, it enhances returns. For example, if the US stock market rises by 5% and the Dollar rises against Sterling by 5%, then the total return to Sterling investors is 10%. Obviously, a falling Dollar can undermine US market returns to Sterling investors, unless they ‘hedge’ the current risk.
How have equity markets reacted to Trump’s win?
Irrespective of who seizes victory, a decisive win brings a measure of stability. With Trump as President Elect, there are also expectations of tax cuts, more business-friendly policy and less red tape. Equity markets rose on both sides of the Atlantic after his victory, and surged following the news about Bessent. Both the Dow Jones industrial average and the S&P 500 share index reached new highs. UK markets also rose, but soon fell when Trump threatened sweeping new tariffs on his first day in office.
The threat of tariffs
Changes to tariffs could reshape trade around the world. China, Mexico and Canada are top of Trump’s list, but it’s feared that he may target other countries, including Britain. Companies might postpone investment decisions due to uncertainty, and there may be slower growth as a result. That said, the appointment of Bessent is positive. It’s thought that he may seek to introduce expected tariffs on a more gradual basis. A hedge fund manager by trade, he is seen as a pragmatist, who views trade tariffs as a negotiating tool.
Which companies will suffer under the Trump regime?
Sectors which might struggle under Trump in the US include pharmaceutical companies. Trump’s choice for health secretary, Robert F Kennedy Jr, denies being anti-vax, but has said that no vaccines are safe and effective. Renewable energy will also face challenges. It is expected that windfarms and solar energy may lose some tax benefits.
Can Trump bring peace in Ukraine?
It is hoped that Trump may be able to strike a deal with Putin resulting in a truce in Ukraine. However, should his government decide to reduce military aid to the Ukraine, there would be increased instability in Europe. This might lead investors to avoid European equities.
How did bond markets respond to Trump?
Bond prices fell immediately after the election (meaning yields rose) as investors factored in greater risk. There were fears that the US will enjoy tax cuts with no reduction in public spending, and potential increases in the rate of inflation. However, bond prices jumped following the appointment of Bessent who is seen as someone who could steady the ship.
The future with Trump: what does it mean for investors
There’s been much concern over Trump’s choices for key roles in his administration: Fox News host Pete Hegseth as defence secretary, Robert F Kennedy Jr as health secretary, Elon Musk in charge of government efficiency. The fact that his first choice for attorney general, Matt Gaetz, was subject to allegations of sexual misconduct. Yet, despite everything, the markets are generally positive about Trump, and putting Bessent in a key position has been universally welcomed. We watch and wait.
AJB Wealth is an investment and wealth management firm based in Alresford, near Winchester, in Hampshire. For an obligation-free consultation, please book a meeting. Or call us on 01428 774 070.
Important: The content of this bulletin is for general consideration only and does not constitute advice. No action must be taken, or refrained from being taken, without first seeking appropriate advice. This company accepts no responsibility for any loss occasioned as a result of any such action, or inaction. It’s important to remember that investments can fall, as well as rise. In the event of early encashment, you may receive less back than your original investment.
