Advisors react to Trump 2.0

Past performance does not guarantee future results. The disclaimer remains the same at the bottom of the advertisement or end of the commercial no matter the name of the financial advisor – or the president of the United States.

The Dow Jones Industrial Average returned 57 percent during Donald Trump’s first presidency from 2017 to 2021. The Dow’s performance represented an annualized gain of 11.8 percent for the index, the best performance for any Republican president since Calvin Coolidge back in the roaring ’20s, according to LPL.

The S&P 500, meanwhile, rose 70 percent during Trump’s first go-round, or 14.1 percent annually.

Leaving party comparisons and credit aside (it’s not a contest, folks – or at least not here), those gains are not too shabby. In fact, Republican or Democratic presidents alike would not hesitate to proudly post those returns on the White House refrigerator.

Nevertheless, Trump’s January inauguration ushered in a clean slate. The returns were great while they lasted, but they are now history. Time to wave bye-bye to the past and move on.

The big question facing investment professionals now is whether history – at least when it comes to the stock market – will rhyme, repeat, or wheel off in a brand-new direction in Trump’s non-consecutive second term. Because while past performance won’t guarantee future results, the investing world can’t wait to know the answer – and simply won’t stop guessing.

TRUMP 1.0 VS. TRUMP 2.0

One method for valuing a stock is measuring it against comparable companies, or “comps,” to use the Wall Street lingo. Now that Trump is back in office, the easiest Trump 2.0 market comp for investment managers to make is to the man himself back in Trump 1.0.

Brian Storey, head of multi-asset strategies at Brinker Capital Investments, said the guiding vision and overarching policy objectives are largely the same. The impact of the second Trump administration on financial markets could be similar to the first, maybe even with additional upside, due to the increased experience of the team around him.

“With a more focused, more experienced, and more ‘professional’ administration, it’s likely that the new Trump administration will more effectively translate his policy objectives into action,” Storey said.

Jim Thorne, chief market strategist at Wellington-Altus, said he expects a “more moderate” approach this time, offering as evidence the wide range of political voices and backgrounds in Trump’s cabinet.

“This moderation contrasts with the Street’s perception of Trump as radical, while it was actually Biden’s policies that were more extreme. Once the market recognizes this reality, we can expect a significant bull rally in stocks and a decline in interest rates,” Thorne said.

Other investment managers say the president may not have changed, but the economic environment, most notably the size of the deficit, sure have. And that could be constraining to a president who does not like to be constrained.

“Back then, inflation was historically low, interest rates were near rock-bottom, and while the federal debt was significant, it wasn’t as urgent a concern as it is today. Now, persistent inflation, higher borrowing costs, and an escalating federal deficit could create significant headwinds for any pro-growth policies, like corporate tax cuts or infrastructure spending, limiting their overall effectiveness,” said Robert Gilliland, managing director and senior wealth advisor at Concenture Wealth Management, a partner firm of Sanctuary Wealth.

From a market perspective, Gilliland said industries such as defense contractors, energy producers, and construction firms might benefit. However, sectors tied to global supply chains or sensitive to trade policies could face increased uncertainty, especially if protectionist measures return, he said.

“The bond market would also likely attract significant attention. Larger deficits and an inflationary environment would make the Federal Reserve’s balance sheet strategy a key focus for investors,” he said. 

From a timing standpoint, Tom Graff, chief investment officer at Facet, noted that the first Trump administration came amid reflation and on the heels of an energy-based “mini-recession” in the industrial economy, a far cry from where it is now.

“In 2025, the economy is already quite strong, perhaps too strong, given stubbornly high inflation. This is a key difference between the first and second Trump administrations that isn't getting as much attention,” he said.

POLICY PROGNOSTICATIONS

As for the economic, business, and tax policies likely to emerge, wealth managers target deregulation as the most significant, not just for the market, but for their businesses as well.

Wellington-Altus’s Thorne, for one, created his own acronym, “DOGE,” when it comes to Trump 2.0 policy, and it doesn’t stand for Department of Government Efficiency, the name of Trump’s newly created agency. Thorne’s DOGE is short for: deregulation, oil and gas expansion, growth, and economic stability.

“These policies are expected to usher in an era of robust, non-inflationary private-sector growth,” Thorne said.

Todd Walsh, CEO and chief technical analyst at Alpha Cubed Investments, said deregulation could result in lower compliance costs and greater operational flexibility in the financial industry.

“Deregulation signals a more favorable business climate, encouraging investor confidence in higher earnings potential and expanded opportunities for risk-taking, especially in the banking sector,” said Walsh, adding that he also anticipates reduced capital requirements under international banking regulatory accord Basel III and an increase in M&A activity under Trump 2.0.

Tax policy will also be scrutinized by the investment management community. Corporate tax cuts could provide an immediate lift to earnings, yet changes in personal income tax brackets, estate tax exemptions, and capital gains treatment could have a far-reaching effect on individual investors.

Concenture’s Gilliland, for one, said many of his clients are already exploring estate planning and tax-efficient strategies to prepare for these potential shifts. 

SAME AS THE OLD STRATEGY

Meet the new president, same as the old president (to paraphrase a line from a Who song.) And for most financial advisors the strategy remains the same (to bend a Led Zeppelin title).

“No major changes to investment portfolios are necessary, as preparations for a Trump victory have been in place since early 2024,” Thorne said. “This forward-thinking approach has positioned investments to capitalize on the anticipated economic environment under the second Trump administration.”

Rather than making dramatic shifts in anticipation of political changes, Gilliland said he is focusing on a “balanced approach.”

“We believe in reinforcing the core strength of portfolios through broad diversification, disciplined risk management, and tax efficiency, or fundamental principles that remain unchanged regardless of who’s in office,” Gilliland said. 

Finally, Graff said he has not made any changes to portfolios strictly because of anticipated Trump policies. Still, he does think there are some areas of increased risk or opportunities.

“Emerging markets are especially vulnerable to a trade war. We were already underweight for other reasons, but Trump's election certainly increases the risks there. We also like mid-cap stocks, mostly because they are the least expensive part of the market that could benefit from a broadening of earnings growth,” he said.