After months of analysis, polling, and deliberation, we now step into a new chapter marked by a second Trump Administration and Republican control of Congress. Donald Trump makes history as the first president since Grover Cleveland to serve non-consecutive terms. While campaign rhetoric dominated the airwaves before the election, the focus now shifts to actions over words. With a range of conflicting strategies on the table, it’s too early to determine which policies will become law or how they’ll affect us in the short and long term. Still, it’s important to consider the potential economic and market implications of these strategies as they unfold.
It seems likely that we could see changes to tax laws by fall next year, set to take effect in 2026. Many individual provisions from the 2017 Tax Cuts and Jobs Act are scheduled to expire in 2025. These include lower individual income tax rates, a higher standard deduction, the $10,000 cap on state and local tax deductions, and the increased lifetime estate and gift tax exemption.
There’s talk of making the 2017 tax cuts permanent, reducing corporate tax rates to 15% for many C corporations, imposing broad tariffs, and allowing the 2021 and 2022 Obamacare subsidies to expire—changes that could significantly impact health coverage. However, proposals like making Social Security benefits and overtime pay nontaxable could be unlikely to progress due to concerns about deepening the federal deficit.
So, what does this mean for investors? The Federal Reserve has already begun lowering interest rates, recently cutting them by 0.75%. However, the potential changes mentioned above could prompt the Fed to pause further cuts or even reverse course on short-term rates. Tariffs remain a major wildcard. Analysts estimate that a 10% tariff across the board (excluding China) could increase core inflation by 3%. While this might sound concerning, remember that equities can serve as an effective hedge against inflation—a point I discussed in our June newsletter article on inflation and the markets.
We might also see a loosening of regulatory policies, which could encourage investment across sectors. Any reduction in government spending may be offset by increased business activity. With consumer spending making up two-thirds of our economy, potential income tax changes could help drive GDP growth.
Uncertainty is a constant in financial markets, and this presidential term is no exception. However, history has shown that staying fully invested often pays off. We believe now could be an opportune time to adopt—or maintain—a diversified investment strategy. Managing risk remains a priority, and your asset allocation may be a key factor in achieving your long-term goals.
Avoid overanalyzing or letting emotions dictate financial decisions. We’ll continue to monitor these developments closely, adjusting portfolios as necessary to navigate this evolving landscape.
