Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Chief Investment Strategist
As Trump’s policy stance takes shape, one thing is clear: tariffs are emerging as the top priority, signaling a potential for intensified trade frictions even before tax cuts come into play. This shift has far-reaching implications for equities, bonds, and currency markets. Here’s how investors can tactically position their portfolios in response to the new Trump playbook.
First, let’s understand the nuanced impacts of Trump’s policies that are likely to have the largest impact across asset classes.
Trade war scenarios usually create heightened market volatility as the trade agenda escalates, which could weigh heavily on certain sectors and regions that are most exposed to tariff risks.
When implemented, tax cuts could boost domestic growth, benefiting US-centric sectors over globally exposed ones. The likely beneficiaries are small-cap and cyclically sensitive companies that stand to gain from a tax burden reduction.
Trump’s administration is also signaling a renewed focus on deregulation, which could act as a pro-business catalyst across various sectors. Deregulation is expected to streamline operations for industries like energy, finance, and manufacturing, reducing costs and potentially boosting domestic growth. However, while deregulation generally supports the business environment, its effects are nuanced across asset classes, particularly when considered alongside the ongoing tariff emphasis.
Tax policy can often take longer to take shape as it needs a congressional approval. There are likely to be some members who could be concerned about the record-high debt and deficits, and in effect, the tax-policy changes that are eventually enacted could be somewhat tempered compared to campaign promises.
Trade and tariff policies in the US, meanwhile, can often be influenced and sometimes directly implemented by executive order. With cabinet picks like Marco Rubio and Mike Waltz signaling a tough stance on China, tariffs also appear to be the immediate focus for Trump’s administration.
In summary, investors should approach equities with caution, as tariff headlines are likely to be risk-negative in the near term, potentially outweighing the positive impact of tax cuts. However, regardless of the outcome, the US dollar stands to benefit from multiple supporting factors, including Trump’s tariff policies, fiscal measures, Fed actions, and geopolitical risks. This dynamic explains the continued strength in the USD, even as US equities struggle to break new highs. The dollar’s resilience is expected to persist, making it a key beneficiary of the current macroeconomic environment.
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