Tracking Trump 2.0: Market Opportunities and Looming Risks So Far

We are now about three months past election day and about two weeks into “Trump Presidency 2.0” – an ideal time to revisit potential opportunities and risks for your investments.

For a quick recap, check out my article Trump 2.0: The Top Investment Opportunities and Risks Ahead,published just after the election. I singled out two big opportunities back then:

• Tax cuts, which should boost S&P 500 profits higher…
• And less government regulation that could benefit businesses, both large and small.

Both of these President Trump-backed opportunities favor some industries more than others. And while we haven’t seen much in the way of detailed tax cut proposals just yet, you can bet this key campaign promise will be coming soon.

However, Trump 2.0 has already started tackling the administration’s goal to decrease regulations, with a storm of efforts in just the first few weeks. So, let’s dive into that first. Then we’ll take a closer look at potential risks.

The Earliest Winners of Trump 2.0

Less government red tape getting in the way of businesses could boost certain sectors and stocks more than others. Here’s a graphic I ran back in November:

As shown above, the biggest potential winners of reduced government regulation could be Industrials, Consumer Discretionary, and Financials – as these three sectors currently face the biggest regulatory burden.

These sectors would also be in line to get a profit boost from lower corporate tax rates, once Trump 2.0 tackles that item on the agenda.

The estimated earnings per share (EPS) bump ranges from a 6.8% boost for discretionary stocks, to a 4.3% EPS lift for industrials, with financial stocks falling in between at an expected 4.6%.

It’s interesting to note that financial stocks have been among the best-performing market sectors so far this year, up 7%, while industrials have likewise outperformed the S&P 500 Index, up 5.6%.

On the other hand, consumer discretionary stocks are up just 3.4% year-to-date, not much ahead of the index itself, which is up about 3%.

It also worth noting that the “average” stock in the S&P 500 is outperforming the cap-weighted index, up 5.5% so far in 2025 – a key theme of mine this year, and a trend that you should keep a watchful eye on.

So far, so good!

But to cover all the bases, let’s look at the possible downsides the market could face.

Potential Risks from a New Trump Administration

The biggest threat to our economy – and to American businesses – comes from a possible resurgence in trade tariffs. On that subject, Trump Admin 2.0 has been oddly quiet about tariffs against our current arch (trading) enemy, China.

However, the Trump administration recently raised alarm bells about trade tariffs against two of our closest trade partners: Canada and Mexico.

Trump is threatening both countries with 25% tariffs as early as this weekend, which could impact inflation and our economic health in a big way. This is especially concerning given that Americans spend nearly $1 trillion annually on imports from Canada and Mexico.

As you can see above, it’s a very long list of items that would increase in cost for both consumers and businesses, negatively impacting our entire economy.

And there’s no question that it would put more upward pressure on inflation, potentially taking any further Federal Reserve rate cuts off the table.

Perhaps this is just a tactic to renegotiate the U.S.-Mexico-Canada trade agreement, a deal that originated during Trump’s first term.

But the man who wrote The Art of the Deal may be after more favorable terms for America the second time around…

It’s a dangerous game to play, as Canada and Mexico are the U.S.’s biggest trading partners; the two countries account for about 30% of our imports. At the top of the list is Canadian oil, which represents 52% of our total oil imports, with Mexico contributing for another 11% of U.S. oil imports.

So, you might want to fill up the tank early. Tariffs could quickly send gas, diesel, and jet fuel prices higher.

A 25% tariff would raise the price of imported oil from Canada by $15 a barrel, according to estimates – an increase that would quickly ripple through our transportation supply chain, driving prices higher.

So, let us hope this is only an elaborate bluff for Trump’s White House to cut a better trade deal.

Mike Burnick’s Bottom Line: As I’ve said before, we’re living – and investing – in an age of increased uncertainty. New investment opportunities and risks are just as close, and could be just as unexpected, as the next White House soundbite or social media post.

In the meantime, keep a watchful eye on the relative performance of markets and sectors compared to one another. Shifts in performance can sometimes be fleeting – and can reverse quickly, which is why it’s important to pay more attention to the signal of underlying trends, and less to the day-to-day noise.

Good investing,

Mike Burnick
Senior Analyst, TradeSmith

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