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A COMPLICATED OUTLOOK: It’s time to take a look at what a Donald Trump presidency would mean for the markets. After weeks of talking with investors, our take is roughly as follows: the markets probably can live with Trump on some issues, but he’s disliked and feared on Wall Street because of his unpredictability and volatile temper.
WHY INVESTORS COULD LIVE with Trump: First, there’s an uneasiness in the markets over big-spending Joe Biden, and a potentially major role for his likely successor, Vice President Kamala Harris. Second, the markets may not have to worry about radical legislation because of the divided Congress, which is likely to persist. For the markets, gridlock is good.
MANY INVESTORS ARE LEERY OF TRUMP, but the economy and the markets performed well during his presidency and stock markets have moved to fresh highs in recent weeks, as Trump opened up a modest lead over Biden. While the markets may tire of Trump’s bombast and endless controversies, the big factor will be policies . . .
THE TOP MARKET CONCERN: It may be tariffs, which Trump has promised to raise to 60% against rivals like China, which would be a de facto tax hike in the U.S. and undoubtedly would prompt retaliation around the world. A trade war will be a huge concern for the markets.
BIG SPENDER: Trump never really cared about deficits; he will spend at nearly Biden levels. Domestic discretionary spending will rise moderately, but Trump will not touch Social Security or Medicare. And his tax cuts from nearly a decade ago will be extended and probably increased, with a price tag of several trillion dollars.
ENEMIES EVERYWHERE — EVEN AT THE FEDERAL RESERVE: Trump is infamous for making enemies, and Jerome Powell is a prominent one. Even though Powell’s term as Fed Chairman won’t expire until 2026, we think Trump would put enormous pressure on Powell to step down immediately after the election. Uncertainty over the Fed could be a major market concern.
REGULATORY POLICY: The markets should like Trump’s laissez faire regulatory policies; the energy industry in particular would be happy to see him win — Trump often says “drill, baby, drill.” Lax policies also should prevail in health care, the tech sector, financial services, transportation, and antitrust.
ISOLATIONISM: This would be a major wild card. Trump could pull the U.S. out of NATO, while turning his back on Ukraine and Israel. And relations with traditional allies like Canada could cool. There could be an irony — the conservative Trump spending less on defense than the liberal Biden.
LEGAL FIGHTS INTO 2025: It’s becoming increasingly clear that several Trump court battles will stretch out well into 2025; Trump is a master at using appeals and delays to tie up trials indefinitely. He may have to divest assets to pay for penalties in civil trials, but his criminal trials could drag on for well over a year — or there could be pardons immediately after a Trump inauguration.
CHECKS AND BALANCES: Liberals are aghast at the prospect of another Trump presidency; among their many fears is the possibility of radical legislation. But we think both the Senate and House will be essentially tied next year, which would make it very difficult to get much enacted.
BOTTOM LINE: The markets will largely shrug off outrageous comments like the ones he made this weekend. That’s Trump being Trump. Policy is what the markets will focus on, and most investors think they can live with a second Trump term. Are the markets too sanguine? It remains to be seen whether unrest could erupt in America if the election result is a virtual tie.
Related: Is the Fed Truly Apolitical?
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