With the start of President Trump’s second term, investors are closely watching to understand how his administration might impact markets, the economy, and long-term investments. We are keeping a close eye on how his policies could affect and influence economic conditions and investment strategies.
We recently hosted a webinar with Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Charles Schwab, to discuss what the Trump administration means for investments. Townsend, a Washington insider with over 30 years of industry experience and host of Schwab’s podcast “WashingtonWise” is well-positioned to discuss the key issues that will matter most to investors. Here are a few of the key takeaways:
- The Fed is Taking a Cautious Approach
At its most recent meeting in late January, the Federal Reserve voted to hold interest rates steady, keeping the range at 4.25% to 4.50%. This decision follows three consecutive meetings where the Fed began its rate-cutting cycle. Additionally, newly released data from the Consumer Price Index (CPI) showed inflation ticked up slightly to 3%, giving the Fed reason to hold before making any additional decisions.
While rate cuts are expected later this year, the Fed remains highly data-dependent, meaning any upcoming economic reports will heavily influence its decisions. At this point, most experts are anticipating one to three rate cuts but not before midyear.
- Tariffs Move the Market
Of all the executive orders and actions announced since Trump’s second term began, only tariffs have significantly impacted the market. When Trump announced a 25% tariff on all imports from Canada and Mexico, there was an immediate negative market reaction. However, within the same day, after discussions with Canadian and Mexican leaders, Trump paused those tariffs until March 4. Meanwhile, the 10% tariff on Chinese imports has taken effect. While China has responded with some retaliation, it has been mild — suggesting a potential signal that China may be willing to negotiate. Nevertheless, history shows broad tariffs can lead to a trade war, impacting economic growth, raising costs for Americans, and increasing inflation.
- Tax Changes in Question
Tax policy will undoubtedly be one of the biggest focuses this year, with the 2017 Tax Cuts and Jobs Act set to expire at the end of 2025. A few of the tax changes gaining momentum include eliminating taxes on tip income, adjusting the state and local tax deduction cap, and potentially modifying capital gains, dividends, and corporate tax policies.
- The Debt Ceiling and Government Spending
The U.S. debt ceiling, temporarily suspended in 2023 until January 2025, is now back in focus. To avoid default, the Treasury Department has begun using “extraordinary measures,” a series of accounting maneuvers to push the default date by three to six months. What happens as the U.S. gets closer to defaulting? While the U.S. has never defaulted, the market doesn’t like getting right up to that edge; approaching default leads to market volatility, making it a key issue for investors to monitor in the coming months.
- Fundamentals First
Regardless of a noisy political system, long-term market trends remain strong. If we look at the stock market over time, it has continued to rise whether a Republican or Democrat was in office. This is a great reminder that markets care about economic fundamentals, like interest ranges, earnings, and economic growth, and not the distractions of political drama. Investors should focus on long-term strategies rather than political drama and emotions playing into investing decisions.
At CCMI, we remain focused on economic fundamentals to help our clients navigate potential risks and opportunities, and guide financial strategies. Our team is committed to helping you understand the evolving political landscape and prepare you for what’s to come. If you have questions about how the new administration might impact your investment portfolio, please get in touch with our team.
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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