What if Trump returns? Guide for investors | Financial markets

They are not going to be spared an avalanche of information about the American elections. The buzz will begin as soon as the June Federal Reserve meeting passes. By the time they return from their summer vacation the media will be flooded with electoral information. To save you hundreds of hours, we’ve created a brief guide on what to expect if Trump wins again, so you can spend September getting back to the gym with peace of mind.

Before we start, one obvious thing. The prediction should be easy, because Trump has already governed. Could it change in his second presidency? In politics we have seen some cases. Alan García, for example. He was president of Peru between 1985 and 1990 and his populist policies—nationalization of the banks, suspension of foreign debt payments—made the country regress to 1960 per capita income levels. In 2006 he won the elections again and carried out a radically different policy, with free trade agreements and spending containment, which expanded the economy by 7% annually.

Could a second Trump be significantly different from the first? It could, but no one believes it. So what to expect from a Trump return?

First, an increase in the public deficit. Both candidates like to spend, but Trump also likes to cut taxes. Doing so simultaneously creates a serious fiscal problem, especially if the legislature starts with a 5.6% deficit in 2024 and exceeds 6% in 2025, as predicted by the American Congressional Budget Office. In Europe the annual hole is around 3.5% of GDP and it will be difficult to bring it below 3%. The impact on financial assets is threefold. First, the government would increase the amount of bonds on the market to pay for that deficit, putting upward pressure on interest rates. If you want to be loaned 200 million you have to pay a higher rate than if you only need 100. Second, with high rates, the stock market would lose its attractiveness. Many conservative investors view the Stock Market as a source of dividends, but the pyrrhic 1.4% that the S&P 500 offers in dividend yield cannot compete with the 4.6% offered by the 10-year bond. The difference is abysmal and will take a long time to close. A corporate tax cut could boost the stock market, as it did when he came to power in 2016, but while it would likely extend existing tax breaks, experts say adding new ones is unlikely. The third impact of a skyrocketing deficit would be a weaker dollar, although this depends on whether inflation spikes or not. A cheap dollar raises inflation—imports are more expensive—but increases repatriated benefits. Let us remember that 60% of the income of those listed in the S&P 500 comes from abroad, and with a weak dollar what is generated abroad looks better.

The second key feature of a Trump administration would be the increase in protectionism. There is talk of tariff increases of around 10% for all trading partners, and 60% for China. The motivation is the promotion of local industry, a very popular argument among Republican voters. But to these reasons are added those of strategic interest. The pandemic and the arrival of Trump broke up numerous global trade agreements. Many governments have concluded that, in times of crisis, a production chain located abroad cannot be trusted. In fact, Trump has talked about a plan to eliminate Chinese imports in key sectors within four years. Strategic interests take precedence over economic ones. The big losers are consumers, who will have to pay more for the same thing. The winners, companies that would not be competitive at a global level but that are competitive at a national level in sectors such as renewable energy, defense, health (medicines and vaccines), semiconductors, or food, companies that help with the automation of employment and assets that protect against inflation, such as agricultural land. Some managers have already launched funds specialized in investing in these trends.

Third, it would increase pressure on the Federal Reserve to reduce and keep rates low. The re-election of Powell—who has remained unchanged under pressure from Trump in the past—seems unlikely in 2026. With the Fed lowering rates and the government spending, we would once again see a “normal” curve in which it costs more to borrow long term than short term.

Fourth, Trump would impose a change of direction in energy policy. Aid for renewables would end and restrictions on fossil energy would be relaxed, boosting a sector that is going through a bad time, with profits falling by 25% in the first quarter of this year.

Finally, a Trump presidency would in all likelihood mean less American commitment abroad. Support for Ukraine and Taiwan would become more tepid, creating expansionist incentives in Russia and China. If we add to this the unpredictability of Trump, the risk of volatility increases enormously, and with it the demand for safe-haven assets, such as gold and oil.

Finally, three warnings so that you do not take the categorical opinions that you will find too seriously.

First: that Trump is not good for the stock market does not imply falls in the stock market. The enthusiasm about artificial intelligence (AI) still has some way to go. Trump could be a burden, but not a reason for collapse. Furthermore, we tend to overestimate the influence of a government on the performance of the stock market. For example, Trump influences energy regulation, but during his presidency, the energy sector did the worst (-55%) among the 11 in the S&P 500.

Second: the deglobalization process was not started by Trump, nor was it reversed by Biden. A Republican presidency would accelerate the process, but they are dynamics that have been developing for decades and will continue regardless of who governs.

And third: the result of the congressional election is as (or more) relevant as the name of the winner. A president who governed with the US Congress against him would hardly have the option of making reforms, good or bad. In fact, investors prefer this option.

In short, no matter how many alarming headlines you read, a Trump presidency would be neither a catastrophe nor a panacea for financial markets.

Francisco Quintana, director of Investment Strategy at ING Spain.

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