Insights Details

Trump’s Second Term and Its Impact on Investments: What to Watch in 2025

As of January 20, 2025, Donald Trump has officially begun his second term as President of the United States. During his campaign, Trump made numerous bold promises on critical issues like immigration, international trade, and even cryptocurrency. However, one of the central concerns for voters—and a key reason he secured the win—was the economy.

Now that Trump is back in office, he must deliver on his promises, but he’s not the only one facing pressure. Wall Street is watching closely, with investors eager to understand how Trump’s policies will shape the economic landscape.

Craig Sterling, Head of U.S. Equity Research at Amundi U.S., emphasized that many of Trump’s policies are still uncertain, and “I don’t think it’s priced in,” he said. The market has yet to fully reflect the potential impact of Trump’s second term, leaving investors to pay attention to every policy change that emerges.

Stock Market Reaction: A Mix of Optimism and Caution

Leading up to the inauguration, the stock market saw moderate growth. The Dow Jones Industrial Average rose by 3.7%, the S&P 500 gained 2.9%, and the Nasdaq was up 2.5%. However, this marked the weakest performance for these indexes in the period between election and inauguration since 2009, when Barack Obama took office during the global financial crisis.

With Trump reportedly preparing to sign roughly 100 executive orders in his first days in office, investors are bracing for policy clarity. Three key policy areas that investors will be keeping a close eye on are import tariffs, deregulation, and corporate tax cuts—each of which could significantly impact various sectors of the economy, including alternative investments.

Tariffs: Will Trade Tensions Lead to Inflation?

One of the most talked-about policies in Trump’s second term is his stance on tariffs. Trump has proposed imposing 25% tariffs on all products coming from Mexico and Canada, as well as an additional 10% tariff on goods from China.

These tariffs could create new trade frictions, potentially increasing costs for American companies that rely on imports. According to a report by Boston Consulting Group, the combined tariffs on goods from China, Mexico, Canada, and other trading partners could add $640 billion in costs to U.S. imports. Companies in industries like auto manufacturing, clothing, and consumer electronics are expected to feel the pinch most acutely.

But even businesses with limited exposure to international trade could be impacted. Investors are concerned that these tariffs could reignite inflation, which could, in turn, push interest rates higher. Mike Dickson, Head of Research at Horizon Investments, noted that fears of inflation have already affected market sentiment, leading to volatility. If Trump’s tariffs lead to inflationary pressures, this could create challenges for interest rate-sensitive investments, such as real estate and high-yield bonds.

As Trump’s tariff policies take shape, investors will be watching for any signs of clarity that could impact inflation and broader market trends.

 Deregulation: Economic Growth and Investment Opportunities

Deregulation is another key area that investors expect to benefit from in Trump’s second term. Trump has signaled his intent to cut back on regulations, stating that he plans to eliminate ten old regulations for every new one passed. While it’s not yet clear which regulations will be targeted, some industries are already anticipating gains.

The financial sector, in particular, stands to benefit from deregulation. Reports suggest that Trump’s advisors are looking to reduce the influence of bank regulators, which could ease restrictions on lending practices. As Jamie Dimon, CEO of JPMorgan Chase, noted, bankers were “dancing in the street” after Trump’s election victory, as deregulation could result in fewer rules governing how banks lend money—a core function of their business.

Beyond finance, other industries like energy, materials, and industrials could also benefit from looser regulations. U.S. manufacturers, in particular, have struggled to recover from the pandemic’s economic impact, but deregulation could stimulate growth, as Craig Sterling noted. The easing of regulatory pressures could spark new opportunities in these sectors, benefiting alternative investments in infrastructure, energy, and materials.

Taxes: Extending the Tax Cuts for Business Growth

Trump’s 2017 tax cuts have already had a significant impact on businesses, and with parts of the tax cuts set to expire in 2025, Trump is expected to extend them as part of his economic plan. These cuts reduced the corporate tax rate to a flat 21%, but Trump has proposed lowering it further to 15%.

The potential for lower taxes could be a boon for businesses, reducing their costs and boosting profit margins. Investors are hopeful that these tax cuts will continue to fuel economic growth, particularly for small-cap stocks, which are often more sensitive to economic changes. Jonathan Coleman, a small-cap growth portfolio manager at Janus Henderson Investors, wrote that the incoming administration’s focus on tax cuts, fiscal stimulus, and deregulation could support small-cap earnings growth, potentially outperforming large-cap stocks in 2025.

While it may take time for the full benefits of tax cuts to materialize, the announcement of continued cuts could spark optimism in the market, offering opportunities for those invested in businesses poised to benefit.

Alternative Investments: Sectors to Watch

Given the potential impact of Trump’s policies, alternative investments are poised to feel the effects of his administration’s actions. Sectors such as commodities, real estate, defense, and infrastructure may see significant changes, especially with the Trump administration’s focus on deregulation, tax incentives, and economic growth.

For example, the commodities and natural resources sector could benefit from deregulation, with Trump’s proposed policies likely boosting domestic oil and gas production. Similarly, real estate investments, including REITs and Opportunity Zones, could see growth from tax cuts and infrastructure spending. Infrastructure funds, in particular, may present opportunities, as Trump has long advocated for large-scale projects to revitalize the U.S. economy.

On the other hand, green energy investments could face challenges, as Trump’s policies may reduce subsidies for renewable energy and relax environmental regulations. Similarly, socially responsible investments (ESG funds) could struggle under a Republican administration that may deprioritize ESG initiatives.

Looking Beyond Inauguration Day: What’s Next for Investors?

Trump’s first speech of his second term will take place on Inauguration Day, but investors are unlikely to receive specific policy details at that time. As Steven Barrow, Head of G10 Strategy at Standard Bank, points out, inaugural speeches are often more about grand statements than concrete policy plans.

Even if Trump’s team releases new policies quickly, the effects on the economy might not be immediate. Adrian Helfert, Chief Investment Officer at Westwood Holdings Group, reminds us that the U.S. economy is like a “massive supertanker” that takes time to turn, even with significant policy changes.

Still, investors will continue to pay close attention to Trump’s policy moves, especially with the potential for increased volatility in the stock market. As the policies unfold, staying informed and flexible will be key for those looking to navigate the changing landscape.

Final Thoughts: Stay Nimble and Watch for Clarity

As Trump begins his second term, the landscape for alternative investments remains uncertain. His approach to tariffs, deregulation, and tax cuts could create both risks and opportunities for investors in various sectors. While the full impact of these policies may take time to unfold, there’s no doubt that the next few years will be marked by significant economic changes.

For now, investors should remain nimble and prepared for volatility. The Trump administration’s policies could significantly shape the market and understanding how these changes affect different sectors and asset classes will be critical for those looking to optimize their investment strategies in 2025 and beyond.

© 2025 Northfront Financial Inc. All rights reserved. The information provided herein is for informational purposes only and does not constitute investment advice. Opinions and estimates are subject to change without notice. Readers should consult with Northfront Financial Inc., their investment advisor, tax advisor, financial planner, or legal counsel before acting on any information presented.

This communication is intended solely for Canadian residents and does not constitute an offer or solicitation in jurisdictions where such offers are not permitted. Northfront Financial Inc.’s services are available only in jurisdictions where the company is registered to provide such services. It is important to note that past performance does not guarantee future results. The content provided should not be construed as a solicitation to buy or sell any security or financial instrument. Northfront Financial Inc. does not warrant the accuracy, completeness, or currency of the information presented.