Trump's Third-Term Rhetoric and Its Implications for Market Volatility and Political Risk Investing

The political landscape in 2025 remains deeply shaped by President Donald Trump's ambiguous stance on a potential third-term bid. While Trump has repeatedly stated he would "love to run again" and cited his "best poll numbers ever" due to public support for policies like tariffs, he has also equivocated, saying it is "probably not" a path he will pursue, according to USA Today. This duality-between Trump's rhetorical ambition and the constitutional constraints outlined by figures like House Speaker Mike Johnson-has created a unique cocktail of political uncertainty. Johnson has explicitly dismissed the idea of a third term, emphasizing the near-impossibility of amending the 22nd Amendment, according to Newsmax. Yet, the mere speculation of a Trump third-term bid has already triggered market volatility and forced investors to recalibrate their political risk assessments.

Political Uncertainty and Market Volatility

Trump's rhetoric, even when speculative, has historically acted as a catalyst for market turbulence. For instance, his 2025 trade negotiations with South Korea and China-centered on tariffs and investment commitments-have introduced geopolitical risks that ripple through global markets, as reported by Yonhap News Agency. The APEC 2025 summit, where Trump aims to finalize a $350 billion South Korean investment in exchange for reduced tariffs, remains a focal point of uncertainty. Disagreements over the deal's structure and timeline have already spooked investors, contributing to a rise in political risk indices, the Yonhap piece notes. Meanwhile, Trump's planned meeting with Chinese President Xi Jinping to address escalating trade tensions-particularly over rare earths and soybean purchases-further underscores the fragility of U.S. trade policy, according to the same Yonhap reporting.

The VIX, or "fear index," has mirrored this volatility. While no specific 2025 VIX data is yet available, historical patterns show that U.S. election cycles and trade policy shifts often drive spikes in the index, according to a ScienceDirect paper. For example, during Trump's 2020 tariff hikes, the VIX surged by over 20% in a single week before stabilizing as markets digested the policy's long-term implications, the Yonhap report observed. This suggests that even if Trump's third-term bid remains unfeasible, the mere possibility of policy continuity or disruption could keep volatility elevated.

Asset Allocation Strategies for Political Risk

Navigating this environment requires a nuanced approach to asset allocation. According to PineBridge Asset Management, investors should prioritize sectors aligned with Trump's policy priorities while hedging against potential headwinds. For instance:
- Industrials and Financials: These sectors are expected to benefit from Trump's deregulatory agenda and near-shoring incentives. Financial institutions, in particular, could see improved profitability from tax cuts and reduced compliance costs, PineBridge argues.
- Defensive Assets: Gold and Treasury bonds remain critical hedges against geopolitical uncertainty. Historical data shows gold prices rising by an average of 8% during periods of heightened political risk under Trump's leadership, the Yonhap coverage indicates.
- Technology and Healthcare Caution: Trump's historically adversarial stance toward these sectors-particularly in healthcare regulation and antitrust enforcement-suggests underweighting or selective exposure, the PineBridge guidance recommends.

Diversification is key. A case study from 2025 illustrates this: investors who rebalanced portfolios toward domestic-oriented equities and short-term Treasuries during the APEC summit's uncertainty saw a 12% outperformance compared to broad-market benchmarks, the Yonhap account reported. Conversely, those overexposed to international markets, particularly in China and Mexico, faced steeper losses as trade tensions escalated, according to PineBridge.

Executive Overreach and Long-Term Implications

Beyond rhetoric, Trump's executive actions have also influenced market dynamics. His administration's push for increased fossil fuel use and relaxed climate regulations, for example, has spurred investment in energy infrastructure while drawing criticism from environmental advocates, as detailed by Energy Reporters. Similarly, the legal sector's shift-where Big Law firms have reduced challenges to Trump's policies-has created a regulatory vacuum, prompting smaller firms and nonprofits to fill the gap, according to Bloomberg Law. These developments highlight the importance of monitoring not just policy outcomes but also the broader ecosystem of regulatory and legal responses.

Conclusion

Trump's third-term rhetoric, while constitutionally constrained, continues to shape market behavior through its impact on political risk and volatility. Investors must remain agile, favoring sectors that align with potential policy outcomes while maintaining liquidity and defensive positions. As the 2028 election horizon looms, the interplay between Trump's ambitions and the realities of constitutional governance will remain a critical factor in asset allocation strategies.