Executive summary:
- The incoming administration of President-elect Donald Trump may make significant changes to fiscal, trade, and immigration policies.
- We believe potential U.S. tariffs could spark volatility in markets in the early months of Trump's presidency.
- We’re optimistic about the U.S. growth outlook for 2025, but will be watching to see how aggressively the new administration pursues policies perceived to be market-positive (tax cuts and deregulation) and market-negative (tariffs and immigration)
As President-elect Donald Trump prepares to take office, his agenda, backed by a Republican-controlled Congress, presents both opportunities and risks. However, with a narrow House of Representatives majority, the pace and scope of legislative action may be more measured than expected. Here are the key areas we believe investors should monitor closely in the first 100 days:
1.) Fiscal policy: Tax-cuts take center stage
We see tax cuts as a key area of investor focus, given their potential to significantly impact corporate earnings and market sentiment. However, a divergence in approach to fiscal policy between Republican leaders could create delays and complications.
U.S. House of Representatives Speaker Mike Johnson is advocating for a fast-tracked package to advance Trump’s full agenda. On the other hand, Senate Majority Leader John Thune outlined a more methodical, two-step strategy: a bill within the first 30 days focusing on border security and defense, followed by a tax reform bill later in the year.
The second package, expected to focus on tax reform, could include measures such as extending the 2017 tax cuts and reducing the corporate tax rate from 21% to 15%. If passed, these measures could boost S&P 500 earnings by 5%. However, investors will need to wait for clarity on important details, such as whether the corporate tax cuts apply to all U.S. companies or just domestic manufacturers. In our view, this could make specific security selection critical.
2.) Tariffs: Risks may not be fully priced Iin
President-elect Trump has proposed tariffs on goods from key trading partners, including China, Canada, Mexico, the European Union, Brazil, Russia, and India, affecting over 60% of U.S. goods imports. Given the significant executive authority Trump holds over this issue, the market faces a key early test: whether the rhetoric around tariffs will translate into policy.
If these tariffs are enacted, they could have profound consequences, disrupting global supply chains, strengthening the U.S. dollar, increasing costs for businesses, and ultimately driving up prices for consumers. These risks may not be fully reflected in market pricing, which presents a clear risk of increased volatility, particularly in the early months of Trump’s presidency.
3.) Immigration policy: Economic impact of potential deportations
The United States has not seen a deportation program on the scale proposed by the president-elect since 1954. Under President Dwight D. Eisenhower, roughly 1.3 million individuals were deported, which is equivalent to approximately 3.3 million people today.
From an economic perspective, GDP growth is driven by the working-age population and its productivity. If deportations increase significantly, the impact on labor supply could be substantial. Below, we show the potential first-order effects of different deportation scenarios on economic growth:
- Immigration flows slow to levels seen during Trump’s first term (gray)
- An estimated 647,000 migrants with active or pending convictions are deported (orange)
- All 8 million unauthorized migrants are deported (red)
The economic consequences of these scenarios could be larger than the immediate numbers suggest, particularly if industries like construction and agriculture—which rely heavily on immigrant labor—are significantly affected. The potential for slower economic growth or even a recession in the most extreme case will be an important area for investors to monitor in the early days of the new administration.
The bottom line
As President-elect Trump takes office, business confidence is rising, and the outlook for 2025 remains optimistic. However, the administration’s policies bring both potential rewards and risks. Tax cuts and deregulation could drive corporate growth, while tariffs and immigration changes may introduce market volatility. The next few months will provide critical clarity on how these policies unfold, and investors will need to stay agile to navigate potential shifts in market sentiment. Ultimately, we believe 2025 is likely to be a year of balancing U.S. growth with policy uncertainty as the new U.S. administration takes the helm.