46 Months of Trump: Navigating the Rest of Trump’s Term

Donald Trump’s second term was expected to reignite the market strategy of his first - corporate tax cuts, deregulation, and a pro-business stance.¹ While Trump’s first term saw significant trade policies, particularly the US-China trade war and NAFTA (North American Free Trade Agreement) renegotiation,² his second term has escalated protectionism at a much faster pace,³ with tariffs and trade barriers implemented more abruptly. While the broader US exceptionalism thesis remains intact, the pace and sequencing of policy execution have shifted, creating early volatility but ultimately aligning with pro-growth objectives.⁴

Key Takeaways

US exceptionalism remains a key factor: While policy shifts and tariffs have introduced new challenges, the US continues to hold structural advantages that support long-term resilience.
Policy-driven shifts: Rapid tariff escalation and deregulation have altered market dynamics, creating both near-term disruptions and long-term opportunities in key sectors.
Sector positioning matters: Defensive sectors like healthcare, financials, and industrials are well-positioned to provide resilience, while small and mid-cap stocks stand to benefit from domestic policy tailwinds.

Why Market Reactions Are Different This Time

Markets are reacting differently to Trump’s second term, not because the US exceptionalism thesis has changed, but due to the speed and nature of policy execution. In his first term, policies were introduced gradually - tariffs were phased in, tax cuts were immediate but well-telegraphed, and deregulation was implemented over time. Markets had time to adjust and price in these changes.⁵

Graph: US Equity and Currency Performance 2 Years From Trump Election Win

This time, key policies have been enacted in rapid succession. Within weeks, the administration imposed sweeping tariffs on Canada, Mexico, and China, issued an executive order loosening financial regulations to accelerate capital return potential for banks, fast-tracked defence and infrastructure spending to boost key industrial sectors, and signalled additional tax incentives aimed specifically at domestic manufacturers.⁶ This compressed timeline has front-loaded uncertainty and volatility, evidenced by the S&P 500 and the US dollar both underperforming compared to Trump's first term, weighed down by heightened policy uncertainty and rapid tariff escalation.

Additionally, tariffs have proved heavier and their projected economic impact more persistent than initially anticipated, resulting in moderated short-term US growth expectations.7 Markets have historically underestimated the long-term impact of rapid policy shifts, and current volatility may follow the same pattern. As policy implementation stabilises, markets are likely to recalibrate and realign with the administration’s underlying pro-growth stance and long-term economic objectives.

Table: Same Goal, Different Timing: Why Market Volatility Came First

Where the Upside Lies

While US economic fundamentals remain resilient, near-term growth expectations have weakened as tariffs weigh on key industries. While analysts expect a rebound in late 2025, execution risk remains high.

Table: US Companies Lead in Earnings Growth Across Global Markets

Dividend growth is playing a bigger role in driving fundamental returns than many may realise accounting for 43% of the combined year-on-year growth in earnings per share and dividends across S&P 500 sectors (as of 16 March 2025). In this context, we define ‘stacked growth’ as the sum of EPS growth and dividend growth - a breakdown of two key components of shareholder value creation. This approach helps highlight what’s driving sector performance beneath the surface.

Recent regulatory shifts, including reduced capital requirements for banks and accelerated permitting for industrial projects, have improved capital efficiency and strengthened the outlook for future earnings and capital return. Meanwhile, Q4 2025 earnings expectations remain intact, suggesting growth is delayed rather than lost. Sector dispersion remains notable, with consumer discretionary and financials showing the strongest combined earnings and dividend growth.

Graph: S&P Sub-Sector Stacked Change (YOY)

Forecasts are not guaranteed, and undue reliance should not be placed on them. This information is based on views as at 16/03/2025.

Equities: A Shift in Leadership

Market leadership is recalibrating as investors digest Trump's rapid policy implementation. Expectations of a broad-based pro-business rally have shifted toward selective sector opportunities. Industrials and infrastructure firms stand to gain significantly from deregulation, domestic manufacturing incentives, and increased government spending.⁸ Financials, buoyed by deregulation, now find themselves uniquely positioned to deliver most of their growth from strong shareholder returns through dividends and buybacks.

Tariffs have weighed on some small and mid-cap stocks, but tax incentives and deregulation could offset these pressures as policy execution unfolds. Historically, small-cap stocks outperform during economic expansions and periods of rate-cutting scenarios likely given current policy trajectories highlighting their longer-term appeal within a domestic-focused US growth strategy.⁹

Given ongoing volatility, investors are increasingly recognising the importance of defensive positioning. Sectors traditionally viewed as defensive, including consumer staples, healthcare, industrials, and utilities, are particularly well-positioned to provide resilience. These sectors offer strategic opportunities for investors seeking stability amid ongoing volatility and reduced exposure to tech-heavy sectors.

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