Monday began the bigger, better and likely bolder second administration of U.S. President Donald J. Trump.
We saw asset markets (futures for stocks and bonds) swing wildly when a Wall Street Journal headline hit the tape Monday morning, with the cash markets closed in observation of the Dr. Martin Luther King Jr. Memorial Day holiday.
“Trump to Lay Out Trade Vision -- but Won’t Impose New Tariffs Yet”
Both stocks and bond futures rallied while the U.S. dollar dropped one per cent in seconds. This speaks to how market participants can expect some of the markets to swing in the first 100 days of the new administration and how sensitive markets can be to these more uncertain policies.
Scott Bessent, the nominee for U.S. Treasury Secretary, said in testimony last week that a 10 per cent tariff would be worth a four per cent stronger U.S. dollar. Since the U.S. election, the dollar has strengthened broadly about seven to eight per cent, which implies that a 20 per cent tariff is what the market currently expects. Headlines suggesting anything less would generally be asset price positive.
While 2025 promises some challenges with inflation risks and equity valuations on the high side of comfort levels, we do not think investors should be trying to trade these sorts of headlines and there will likely be many of them.
I really like private equity and credit as additions to portfolios that should do well in Trump 2.0 as his non-trade related policies should benefit more mergers and acquisitions and generally better overall business conditions versus the higher volatility we are likely to experience in the public markets.
The challenge in private markets is accessibility and liquidity. The good news there is that the industry is working fast to bring out funds that offer access to this space. For many, they are open to clients that use financial advisors and not necessarily direct investors, but there are some. See the link below to get you started.
AIMA Canada Handbook 2024: Canadian Alternative Investment Landscape
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