Trump's Market Moves: Slumps, Bumps, and Jumps

The 2024 U.S. presidential election has come and gone, and with it, a new wave of market expectations and uncertainties. Donald Trump's victory, securing his second term, has set the stage for a series of potential market slumps, bumps, and jumps. As investors navigate this new landscape, it's crucial to understand the implications of Trump's policies on various sectors and investment opportunities.



Protectionist Trade Policies: A Double-Edged Sword

Trump's first term was marked by protectionist trade policies, particularly the imposition of tariffs on a wide range of imports. These tariffs, which effectively put a tax on imports, had significant impacts on sectors like steel, solar panels, and Chinese goods. Businesses that relied on these imports faced higher costs, which they either passed on to consumers or absorbed, leading to lower profits. The goal was to increase domestic demand and production, but the reality was more complex.

In his 2024 campaign, Trump threatened to impose a 60% tariff on all Chinese exports to the U.S. This suggests that investors can expect continued protectionist measures in his second term. Sectors that rely heavily on imports from China, such as technology, manufacturing, and retail, could face higher costs and potential supply chain disruptions. Conversely, domestic producers in these sectors might see increased demand and production, potentially leading to higher profits.

However, the broader economic implications of these policies cannot be ignored. Tariffs can lead to retaliatory measures from other countries, affecting U.S. exports and overall trade relations. Additionally, the increased costs for businesses could lead to inflation, impacting consumer spending and overall economic growth. Therefore, investors should closely monitor these developments and consider diversifying their portfolios to mitigate potential risks.

Digital Assets and Cryptocurrencies: A New Frontier

Trump's support for digital assets and cryptocurrencies is likely to have a significant impact on blockchain-related investments. Trump has been a strong supporter of digital assets and cryptocurrencies, promising to build a government stockpile of Bitcoin at a conference earlier this year. He also pledged to fire U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler, who is seen as pushing for more and stronger regulations. This stance has already led to a surge in Bitcoin prices, hitting over US$100,000 in late 2024.

The upward movement in Bitcoin has shown to positively impact crypto miners, and crypto wallet and trading companies within HBLK. This suggests that blockchain-related investments could see substantial gains under Trump's second term. The ETF offers access to equity securities that are exposed, directly or indirectly, to the development and implementation of blockchain technologies. Therefore, investors in HBLK could benefit from the expected regulatory rollbacks and pro-growth policies that Trump has promised.

However, there are also potential risks. The market's reaction to Trump's policies during his first term showed that expectations do not always align with reality. For instance, after Trump’s win in November 2016, deregulation and energy were among the biggest expected movers, but Energy and Financials were the worst performing sectors during his presidency. This historical perspective underscores the uncertainty and potential for unexpected outcomes in the market.

Deregulation: A Boon for Banks?

Given Trump's pro-deregulation stance, the rollback of regulations such as the Basel III Endgame proposals could significantly impact the performance of bank stocks. The Basel III Endgame proposals are designed to ensure that large banks have sufficient capital to withstand systemic risk events. These rules are set to come into play in July 2025 and apply to all banks with assets exceeding US$100 billion. The rollback of these proposals could lead to reduced capital requirements for banks, potentially increasing their profitability and liquidity.

For investors in the Harvest US Bank Leaders Income ETF (HUBL:TSX), this presents both opportunities and challenges. On the opportunity side, the rollback of regulations could drive windfall profits for banks, as they would have more flexibility in their operations and less stringent capital requirements. This could translate into higher dividends and share prices for the banks held within the ETF, benefiting investors. The ETF offers a consistent monthly cash distribution of $0.09 per unit, which could be enhanced by the increased profitability of the banks it holds.

However, there are also challenges to consider. Deregulation can increase systemic risk, as banks may take on more risk in the absence of stringent regulations. This could lead to potential volatility in the banking sector and, by extension, in the performance of the ETF. Additionally, the rollback of regulations could face legal and political challenges, introducing uncertainty into the investment landscape.

Historical Perspective: Lessons from the Past

Looking back at previous presidential terms, it's clear that market expectations often diverge from reality. For instance, after Trump’s win in November 2016, deregulation and energy were among the biggest expected movers, but Energy and Financials were the worst performing sectors during his presidency. Similarly, under the Biden administration, many investors expected big energy to suffer and projected a comeback for renewables. Instead, Energy turned out the best performance over the course of the Biden presidency.

These historical lessons underscore the importance of a diversified investment strategy. While Trump's policies may present opportunities in certain sectors, investors should be prepared for potential risks and uncertainties. By focusing on diversity in their portfolios, investors can better navigate the slumps, bumps, and jumps that Trump's second term may bring.

Conclusion

As Donald Trump begins his second term, investors face a landscape of opportunities and challenges. From protectionist trade policies to deregulation and support for digital assets, Trump's policies are likely to have significant impacts on various sectors. By understanding these implications and adopting a diversified investment strategy, investors can better navigate the market slumps, bumps, and jumps that lie ahead.