How to Trade in the New Trump Era

How to Trade in the New Trump Era

Markets like certainty and hate uncertainty. The former allows expectations to be formed for what may lie ahead. It is harder to form a consensus when the outlook is uncertain although it does create a backdrop for volatility.

In uncertain times markets will often factor in the most extreme scenarios and then reassess along the way.
This brings us to the election of Donald Trump as the 47th president. Markets have priced in the so-called Trump Trade, which has seen stock markets firm, bond yields rise, the dollar firm and Bitcoin set a new record high.

It has also created a set of uncertainties as to what extent the new administration will execute President-Elect Trumps campaign promises.

How to Trade in the New Trump Era

In this regard there seems more questions than answers:

Will there be across-the-board tariffs or selected levies on specific products and/or specific countries?
Will the threat of tariffs instead be used as a negotiating tactic?

What will be in the tax cut bill? What will be the net effect on the budget deficit? I heard today that the House plans to introduce a tax bill within the first 100 days.

Will there be any offsetting spending cuts?

Will there be an increase in defense spending?

Will the prospects of higher budget deficits impact Fed monetary policy?

Will President Trump try to interfere with the Fed if the latter shows caution cutting rates?

What will be the impact on geopolitics and current conflicts in the Middle East and Ukraine?
What will be the impact on NATO and European alliance but this is beyond the scope of this article?

Expect the worst, hope for something less?

I may have left out some questions but my point is that markets seem to have factored in the most extreme outlook for tariffs (risk of inflation) and tax cuts (risk of higher budget deficits), and the new president does not take office for another two months.

While markets hate uncertainty they seem to love President Trump and the unpredictability that comes with him as it creates volatility. This leaves room for the “worst” case basis not being realized but in the meantime there is no reason to fight the tape until some of these questions get answered or when charts say otherwise. So, in any case, be prepared in the new Trump era for headlines and surprises.

How to Trade in the New Trump Era

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