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What Trump’s second coming means for self-funded retirees
For self-funded retirees, a second Trump administration will demand a strategic approach to investment that emphasises flexibility and risk management. That’s the considered opinion of Tim Sullivan, director of the Perth-based wealth management firm, Integro.
No different to other advisers who spoke to The Golden Times, he sees the re-election of the 78-year-old republican as a pivotal moment for the global economy, with implications for geopolitics, globalisation and financial markets.
“As the dust settles, analysts are grappling with the potential consequences of a second Trump administration, one that may be more radical and transformative than the first and could see a significant shift in US policy. This new landscape is expected to be characterised by increased government borrowing, tax cuts and the implementation of tariffs.”
What is making it difficult for advisers – and their clients – is that Trump’s economic policies outlined during the frenetic election campaign can been seen as both positive and negative for the markets, as Seema Shah (pictured), chief global strategist at the US investment group Principal Asset Management, graphically highlights.
“US equities have risen as investors anticipate lower taxes. But concerns that higher tariffs will drive up inflation has prompted markets to price out some Federal Reserve rate cuts next year – a market negative.”
On the tariff front, which significantly does not require congressional approval, Shah is predicting that Trump will increase them on imports from China, adding that a universal tariff on all imports is also possible.
Andrew Tilton, Goldman’s chief Asia-Pacific economist, concurs. “With Trump and some likely appointees focused on reducing bilateral deficits, there is a risk that – in a sort of whack-a-mole manner – burgeoning bilateral deficits could eventually prompt US tariffs on other Asian economies.” So, US tariffs will be paid by companies looking to import products, raising their costs – and fuelling inflation.
Matthew Leong, senior portfolio manager at Partners Wealth Group (PWG), stresses that the election is only one part of a broader mosaic that impacts markets.
“Some recent examples of US presidency changes and assets not behaving as initially thought include the US S&P 500 Energy Sector Index deeply underperforming the S&P 500 during the first Trump administration after an initial period of outperformance, and the Renewable Energy Producers Index underperforming the S&P 500 under President Biden, also after an initial period of outperformance.
“As a result, we generally do not take large positions based on election outcomes but monitor the progress of policy changes and assess the implications of any policy changes on our portfolios. The medium to long term is more important and we believe the structural changes and mega-trends haven’t necessarily changed in a way you can predict for investment portfolios from the election.
Remember, too, that what policies get enacted can be different to or in a different form to the stated campaign position. In addition, important measures such as tax reform require congressional approval, and while Trump is likely to have a majority in the House and Senate, that will not guarantee easy passage through the legislature where party discipline is much looser compared with Australia.
In this investment environment, Leong says PWG’s scorecard was a marginally positive risk-on stance, so it was marginally overweight equities. “Our preference is a tilt in global equities given positive earnings revisions in contrast to negative earnings revisions for domestic equities. We have been incrementally adding to small cap exposure in the past few months as valuations have become relatively attractive and the dispersion in earnings growth is narrowing.”
Sullivan says critical factors to consider in a Trump administration will be to reduce exposure to sectors dependent on global supply chains while potentially increasing allocation to domestic US companies, as well as those companies likely to benefit from reshoring.
“While near-term volatility is expected, maintaining a diversified portfolio with tactical flexibility is important. Domestically for Australian equities, any weakness in China because of US imposed tariffs may have an initial impact, but this may also be met by the potential of Chinese stimulus to offset any weakness.”
David Leon of the Adelaide-based private wealth firm Stellan Capital reflects the views of other advisers in recommending being overweight in US equities.
“Our view is the growth profile of both the US economy and market is currently superior to the domestic hence our equity allocation is tilted internationally. Trump is also likely going to influence the US dollar that could strengthen over time which should further support our thesis.”
He also zeros in the contradictory nature of Trump’s policies and what they will mean for global markets. While lower US corporate taxes and increased government spending will be good for corporate profits (and equity prices), it will be bad for inflation and diminishing the likelihood of further interest rate cuts.
“There’s no question in our mind we are likely on the verge of a new inflationary period. Lower taxes, tariffs and an already strong labour market in the US creates the perfect environment for it. The short-term sugar hits will likely feel good to both the economy and share market but longer term, there must be some consequences. So, we are bullish short term, a little cautious long term.”
Self-funded retirees can take some cold comfort from the fact that history shows it’s the broader economy, not geopolitical events, that mostly influence markets. For example, the S&P 500 rose during World War 11. But that doesn’t mean there won’t be some hiccups during Trump’s second term. It could still be a very bumpy ride.
