(MENAFN- Investor Ideas) As Donald Trump's second term begins on January 20 2025, his economic agenda is set to dramatically reshape global financial markets, predicts Nigel Green, CEO of deVere Group , one of the world's largest independent financial advisory, asset management, and fintech organizations.
But he also warns that while there may be short-term growth, the first 100 days of Trump's presidency will likely usher in significant market shifts, with both opportunities and risks for investors.
Trump's agenda-including tax cuts, deregulation, and a $1.5 trillion infrastructure plan-is expected to spark market rallies and bolster certain sectors.
However, the deVere CEO notes that the broader economic environment will be affected by the potential of rising inflation, the impact of protectionist tariffs, and heightened market volatility.
Equities and inflation pressures - a tug of war
Green anticipates that the early months of Trump's presidency will be marked by a rally in equity markets, driven by tax cuts and deregulation.
His promise of lower corporate taxes and looser regulations in critical sectors like energy, technology, and financial services is expected to fuel investor optimism. However, Green stresses that inflation, spurred by both fiscal stimulus and the proposed infrastructure spending, will likely counterbalance any initial gains in the stock market.
"While the tax cuts and deregulation will likely spark growth, they come at a cost. Higher demand for goods and services, driven by infrastructure spending, will put upward pressure on prices," explains Nigel Green.
"Inflation could accelerate beyond the current 3.7% rate, potentially reaching 4-5% by mid-2025, which will increase costs for consumers and businesses alike. Rising inflation will inevitably reduce disposable income and might suppress consumer spending in the longer term.
"With inflation on the rise, the Federal Reserve may face pressure to raise interest rates in response, making borrowing more expensive and further stoking concerns about consumer and corporate profitability. The combination of rising inflation and the cost of capital could lead to a period of market volatility, requiring investors to adopt more cautious strategies in the latter half of 2025."
The dollar and emerging markets
One of the major consequences of Trump's policies is likely to be a strengthening US dollar. The anticipated fiscal stimulus, rising Treasury yields, and capital inflows seeking safe-haven assets are expected to support the dollar in the short term.
But the dollar's strength will present challenges for both US exporters and emerging markets burdened by dollar-denominated debt.
"A stronger dollar will create significant risks for global markets," says Nigel Green.
"US exporters will face increased competition as American goods become more expensive abroad. Meanwhile, emerging markets-especially those like Turkey and Argentina, which have substantial dollar-denominated debt-will face heightened repayment costs. While countries such as India and Indonesia may weather this better, the strengthening dollar could exacerbate existing challenges in more vulnerable economies.
"A stronger dollar could prompt a shift in global capital flows, creating market instability, particularly in emerging markets. Countries with weaker currencies or high debt in US dollars may struggle to maintain stability, potentially leading to increased volatility in global markets."
Tariffs are barriers to growth
Another key element of Trump's second term will be a return to protectionist trade policies, including tariffs on imports.
"Tariffs have a short-term political appeal, but they create long-term economic inefficiencies," Nigel Green states.
"By raising the cost of imports, tariffs push up prices for American consumers, while also making it more expensive for US companies to source materials from abroad. Additionally, tariffs often lead to retaliatory measures from other countries, which can lead to a trade war that disrupts global supply chains and hinders growth."
Green highlights that industries such as tech, retail, and automobiles are likely to be hit hardest by higher tariffs, as these sectors rely heavily on global supply chains. The increase in input costs could lead to higher prices for consumers and slower growth in these industries.
"While tariffs may protect certain domestic industries, they ultimately undermine global collaboration, reduce competitiveness, and hinder innovation," he says. "The impact of protectionism will likely lead to reduced trade volumes and a potential slowdown in economic activity, both in the US and globally."
Bonds amid uncertainty
Despite the expected inflationary pressures and potential market volatility, Nigel Green is optimistic about the performance of bonds in the early stages of Trump's presidency.
As the dollar strengthens and yields rise, investors are likely to flock to bonds, especially those with longer durations, seeking stability amid economic uncertainty.
While bond markets may face some volatility in the event of interest rate hikes, the deVere CEO suggests that US bonds remain a relatively safe investment for those seeking stability in uncertain times.
"This favorable bond outlook could provide a buffer against broader market challenges as the US economy adjusts to Trump's policies."
Bitcoin's surge
While the broader market faces headwinds from inflation and tariffs, Nigel Green points to Bitcoin and other cryptocurrencies as likely beneficiaries of Trump's economic policies.
Bitcoin is expected to surpass $100,000 in the first quarter of 2025, driven by Trump's pro-crypto stance and the growing institutional adoption of digital assets.
"Bitcoin is gaining momentum as a mainstream asset, and Trump's policies will likely serve as a catalyst for further adoption," Green explains. "His vocal support for digital currencies, coupled with promises of regulatory clarity, will encourage greater institutional investment. As a result, we expect Bitcoin to reach new highs and the broader crypto market to continue its upward trajectory."
As traditional markets face volatility, digital assets, including Bitcoin, may become an increasingly attractive option for investors looking for alternative stores of value.
Strategic financial planning
Investors are urged to remain vigilant and strategic in their approach to the markets, given the range of risks and opportunities that will arise in the wake of Trump's policies.
While certain sectors, such as tech, energy, and infrastructure, may benefit from deregulation and fiscal stimulus, the broader economic environment is likely to be more complex, with likely issues of inflation, rising interest rates, and trade tensions creating challenges.
"Investors who are proactive and well-advised will find opportunities in certain sectors," Green concludes.
"But those who ignore the risks-particularly the impact of tariffs, inflation, and market volatility-may find themselves at a disadvantage. The first 100 days of Trump's presidency will be pivotal in setting the tone for the rest of 2025 and beyond."
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