In the immediate aftermath of the election of Donald Trump the investment world was unable to contain its enthusiasm. US equities boomed with the S&P, Dow and Nasdaq hitting record highs.
Investors were, and still are, clearly excited by the president’s policy agenda of reducing red tape, cutting taxes and supporting American infrastructure projects. Forget Make America Great Again, it is more a case of Make American Stocks Great Again.
“Investors view a Trump presidency as broadly positive news for the performance of US companies and the large US-listed technology stocks,” says Miranda Seath, director of market insight and fund sectors at the Investment Association.
Although there has been some recent market unpredictability, the booming market position looks set to continue. The S&P 500 is projected to climb further in 2025, according to Goldman Sachs’ research. The index of the largest 500 listed companies in the US will hit 6,300 this year, up from the current 6,066, the asset manager says.
The investment team at UBS are even more positive. They predict the S&P reaching 6,600 by the year-end. “The Trump presidency”, UBS notes, “has the potential to reshape the global economic and geopolitical landscape.”
From what we have seen from Trump so far, that looks to be his ambition.
In addition, Goldman Sachs’ research forecasts growth in earnings-per-share of 11% in 2025 and 7% next year. “Robust earnings growth should drive continued equity market appreciation,” David Kostin, chief US equity strategist at Goldman Sachs, wrote in the research.
Corporate America is therefore in good shape. “US corporate earnings are forecast to grow in the mid-double digits next year,” says Tom Stevenson, investment director at Fidelity International. “American companies are expected to grow faster than their peers in the rest of the world, with higher returns on capital.”
Trump: the winners and losers
One key question surrounds which sectors are set to benefit during Trump’s second term. Given the president’s agenda, these are not difficult to identify.
Fossil fuel stocks should ramp up given Trump’s “drill baby, drill” dictum. US steel producers should also profit, given that the industry should be a beneficiary of Trump’s tariffs. Banks should see some boom given the financial regulatory loosening promised by the new administration.
Trump’s friends in Silicon Valley should also see their backing of his presidential campaign reap rewards. “Tech companies have been lobbying Trump’s administration for more favourable treatment in areas such as tariffs, AI regulation and anti-trust regulation, and we can expect to see this continue,” says Ben Barringer, global technology analyst at Quilter Cheviot.
The magnificent seven, which generated more than half of the S&P 500’s total return in 2024, are likely to again have a major impact on returns this year, which potentially points to a positive US equities picture. Although this should come with the caveat that only seven stocks driving gains within an index is not a great position over the long term.
And US small-cap stocks should also stand to benefit from the ongoing deglobalisation of supply chains – the so-called reshoring or onshoring trend. The Russell 2000 index, which tracks US small cap companies, has already seen substantial gains.
“Small and mid-cap companies are much more likely to have customer bases that are either exclusively or predominantly in the US,” says Bob Kaynor, head of US small and midcap equities at Schroders. “For that reason, small and mid-cap stocks can provide investors with more direct exposure to the US economy.”
And there are thousands of small-cap companies to choose from in the US stock market, so investors could be said to be spoilt for choice when it comes to the small-cap universe. In addition, small-cap earnings are already expected to rise 16% in 2025, according to investment firm Cambridge Associates. And, if tax cuts are enacted, they should disproportionately benefit, given that more of their revenue is generated domestically compared to their large-cap peers.
The stock losers under Trump, are likely to be in three areas. The first, will inevitably be those associated with renewable energy, given Trump’s position on climate change, which he has described as a “hoax,” and the fact that one of the first acts of his presidency was to withdraw from the Paris Agreement for a second time.
Then there are pharmaceutical companies. Trump’s pick for secretary of health and human services, Robert F Kennedy, is a long-time critic of the healthcare sector, vaccines and big pharmaceutical companies, so the industry is likely to face some di cult days ahead.
Finally, companies that are dependent on complete global supply chains – of which there are worryingly many – are likely to be losers under Trump. The standout sectors that could suffer most are electronics, footwear, the car industry, and food and beverage companies.
Equity boost
The other narrative set to boost US equities is the economy. Expectations for this year point to a robust economic growth picture. Asset manager Candriam anticipates 2.6% GDP growth in the US, driven by strong labour markets, solid consumption and increased investment in the technology sectors.
“We are overall constructive towards equity markets, favouring American stocks,” says Nadège Dufossé, global head of multi-asset at Candriam. “Even though the performance and valuation of the American stock market already reflects some optimism, the growth trajectory of the US economy and corporate earnings is much stronger and more resilient than that of other developed countries, such as Europe,” she says.
The view that the US economy is in a good shape is shared by Tom Stevenson. “The US economy was growing faster than the rest of the developed world even before Trump promised to pour fuel on the re,” he says.
And Laura Cooper, global investment strategist at Nuveen, says the US economy is a strong driver behind its markets. “We still think the US market offers the best combination of relative safety and growth against a backdrop of the US economy poised to outperform,” she adds.
Cooper also notes that some of Trump’s polices are likely to directly benefit US equities. “The US administration’s likely prioritisation of domestic growth through tax cuts and deregulation should be supportive of a broadening rally within US equities,” she says.
Given the focus on tariffs, the Trump trade could well be good for riskier business. The HSBC multi-asset team has outlined an “extremely positive” backdrop for risky assets. In a mind- boggling metaphor the team described this opportunity as “Goldilocks on steroids”.
Julian McManus, a portfolio manager on the global alpha equity team at Janus Henderson Investors, says the main risks are likely to be volatility centred around geopolitics, given that Trump’s appointments point to a hardline hawkish policy, particularly relating to foreign policy and trade.
“Risk is very much back on the table, and volatility will be rising,” McManus says. “Investors will likely seek companies that are resilient to this – and for us that means staying focused on those that generate healthy levels of free cash flow.”
Reasons not to be cheerful
This upbeat outlook is not the whole story. For all the positive noise surrounding the Trump effect on US equities, there are a number of reasons for investors to curb their enthusiasm. The first can be seen within the bond markets, which has seen something of an unsteady start to 2025.
The bond market usually sniffs out a problem long before other parts of the market do. Treasury prices have fallen with concerns that Trump will borrow more money, putting further pressure on the government’s finances. The US budget deficit already stands at $1.9trn (£1.5trn).
And bond yields rise when prices fall. At the time of writing, the 10-year US treasury yield stood at 4.56% compared to 4.28% on the day of last year’s US presidential election, that is a decent fillip in a short period. It provides problems for the equity market, as rising bond yields increase companies’ cost of raising capital.
Then there is the strength of the US dollar, which appears to be something of a safe haven in times of crisis, or a potential crisis on the horizon, and has negative implications for listed corporates. “A stronger dollar for longer erodes US multi-nationals’ external competitiveness, creating a potential earnings headwind,” says Peter van der Welle, a sustainable multi-asset strategist at Robeco.
Research by the asset manager shows that a slowdown in global trade volumes is typically associated with a stronger US dollar, which also sees equity markets trading lower.
The 2018/2019 tariff announcements during the first Trump administration showed that the S&P 500 as well as it’s Chinese counterpart the CSI 300 traded around 2% lower in the subsequent 20 trading-day period.
Inflationary impact
The inflationary environment could also be one to watch as a result of the Trump tariffs. “Global inflation no longer appears to be retreating, notably in the US, due to uncertainties surrounding the Trump administration’s programme,” says Benjamin Melman, global chief investment officer at Edmond de Rothschild Asset Management.
This potential inflationary environment could mean the Federal Reserve’s ambitions for interest-rate cuts are scuppered.
“Potential tariff-driven inflation risks may keep rates higher for longer, while the president’s promised de-regulation push could further fuel economic growth – and inflation along with it,” says Adam Singleton, chief investment officer of external alpha solutions at Man Group. “In such a scenario, the Fed would have little justification for cutting rates.”
A more negative scenario is that interest rates will need to rise before they can fall and with it have a harmful impact on the US equity market, says Eric Souders, a director and lead strategist on the Payden and Rygel global unconstrained fixed income team.
“Higher long-end yields will cause asset prices to cool down, demand to slow and inflation to abate,” he adds. “This might mean a mediocre 2025 for equities and credit and a challenging environment for bond yields.”
Power of the US
The wider problem is if US equities experience difficulty then global investors suffer. As an insight into their power and importance to all investors, US stocks now account for more than 67% of global equities, as measured by the MSCI All Country World index.
There is also one political-related risk with investment implications: the Trump presidency could turn into cabal of his friends, where the government does nothing more than impose less regulation, lower taxes and higher spending in specific areas that satisfy Trump’s pals.
Such a situation, if it were to become the norm, would not be good for US equities or the US in general. Such a scenario “can degenerate into an ever-more unequal and indebted nation with less dynamism and greater risk of bubbles”, says Dr David Kelly, chief global strategist at JP Morgan.
A final issue cited by some commentators, is that the US equity market is seen as expensive, meaning there is little room for equities to move upwards. But there are different ways to read this, as Duncan Lamont, head of strategic research at Schroders, points out.
“The US being expensive is not a new phenomenon, nor is the relatively high weight of the US in global markets,” Lamont says. “US stocks also have a lot going for them, including soaring US productivity versus the rest of the world, better economic momentum, and corporate buying,” he adds.
But there is one important factor that means investors are likely to stick with US equities, no matter what. “The fear of missing out makes it difficult to turn your back on winning investments,” Stevenson says.
And US equities have proved time and again they are very much winning investments. “It would be eccentric not to have an exposure to the world’s most dynamic and innovative economy in your investment portfolio,” Stevenson adds.
But such enthusiasm is likely to be curbed to some degree. Lisa Shallett, chief investment officer at Morgan Stanley Wealth Management, has said she is expecting rises in US stocks of between 5% to 10% this year. This not bad in itself, but is well adrift of the 20% and above levels that became the norm during the past two years.
This probably represents where investors need to be when approaching US equities: curbing their enthusiasm while still picking up decent returns from Trump’s market winners.
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