President-elect Donald Trump’s victory and the potential for a vastly different regulatory environment boosted markets already primed by a broadly solid third-quarter earnings season.

“I view earnings as check-ins to see how a company is doing. An individual earnings report doesn’t usually reveal much, but every now and then there’s a quarter that shows you something different,” says Carl Kawaja, portfolio manager for The Growth Fund of America®. 

Given the change in U.S. leadership, separating the winners and losers of Trumponomics 2.0 is front and center for many investors. At the macro level, how will geopolitical conflicts and rising tariffs impact global trade and inflation?

At the ground level are questions about how specific industries and companies will fare. There are clues from recent third-quarter earnings reports that could help investors prepare for what’s next.

1. Banks may benefit, but prospect of higher rates clouds outlook

Banks are expected to benefit under a Trump administration as regulations around capital requirements are likely to loosen, says Irfan Furniturewala, portfolio manager for CGGR — Capital Group Growth ETF. 

Mergers are also expected to attract less antitrust scrutiny from officials, which could speed up the time it takes to close transactions. An increase in deal making would be positive for the banking industry since many provide advisory services as well as debt to help with financing.

One recent earnings report showed that big banks are in good shape. Of note, debit and credit card spending rose 6% at JPMorgan, the largest U.S. bank. “Consumers remain strong, and that will likely continue unless we see labor markets weaken,” Furniturewala adds.

Concerns about increased government spending and the potential impact to inflation have pushed yields on longer dated Treasuries higher over the past few months. The benchmark 10-year Treasury yielded 4.34% on November 7, 2024, from a level of 3.78% on September 30, 2024.

“It’s too early to know how inflationary the new policies could be,” says Fergus MacDonald, portfolio manager for The Bond Fund of America® and American Funds Mortgage Fund®. “In my view, the disinflationary impact of significant monetary tightening since early 2022 is still working its way through the economy, and a return to inflationary policies would take some time to gain traction.”

Rates are likely to continue to decline over the next year as the Federal Reserve seeks a normalized rate environment, according to MacDonald. Officials in November cut interest rates for the second time in as many meetings by 25 basis points to a range of 4.5% to 4.75%.

2. Leaders emerge amid challenges in the automotive industry

U.S. automakers’ stock prices jumped on Trump’s victory as investors digested the potential impacts of fewer regulations and looser monetary policy. However, autos are also a prime target for potential tariffs given how globalized their supply chains are, and a trade war with Europe or China could lead to market dislocations.

The backdrop heading into the election was already challenging for automakers as demand has chilled. “Consumer sentiment is a major driver of U.S. auto sales, and it remains roughly 25% below pre-COVID levels based on the data we track,” says equity analyst Drew Macklis. Weak sentiment is largely due to high interest rates and elevated prices, which have pushed the average monthly payment on a new vehicle in the United States to around $730.

Within the big three Detroit automakers — Ford, General Motors and Stellantis (formerly Chrysler) — the most recent quarter revealed diverging prospects. General Motors’ operational rigor allowed them to better navigate the soft demand environment. Notes Macklis, “GM has been disciplined about controlling their cost structure, keeping price discounts smaller than those of peers in key segments like large pickup trucks, and rigorous about capital allocation.” In their latest earnings release, GM raised their full-year profit guidance and now expects to sustain that higher profitability in 2025.

Structural change is also brewing beneath the surface in the automotive market. While electric vehicle (EV) growth has stalled recently and the fate of regulatory incentives for EV adoption is uncertain under the next administration, carmakers are still making headway on improving their EV model lineups. Tesla, for example, plans to launch new models in 2025, including a more affordable vehicle, and legacy carmakers are hoping to dramatically improve the unit economics of their EVs in the years ahead. “On first principles, an EV lends itself to a cheaper build cost compared to combustion vehicles, since the EV has roughly 90% fewer moving parts. Unlocking that at scale, however, requires deep engineering and manufacturing expertise, and most OEMs are still early in that learning curve,” Macklis explains. In parallel, autonomous robo taxis from Alphabet-owned Waymo — which have gone mainstream in cities such as San Francisco and Los Angeles — continue to grow their customer base as they expand operations to additional cities like Austin and Atlanta.

3. Luxury slowdown could continue before recovering

American shoppers may be more willing to buy high-end brands now that the election is over, says equity analyst Julie Wang Chou. “We still need to get through the transition of power and have additional clarity on the new administration’s policy, but I think that U.S. luxury spending has bottomed. However, the growth rate going forward may be substantially slower than during COVID-19.”

Despite a potential turnaround of sales in the U.S., investors will likely remain on edge about the near-term earnings potential for luxury companies, according to Chou. That’s because Chinese buyers, who typically purchase around 33% of luxury goods sold globally, are spending less. It will likely take time for consumer confidence in China — which underpins spending habits — to return given wage declines, travel restrictions and steep losses in property values.

A renewed trade war could mean higher tariffs at a time when luxury brands have hit a temporary wall in pricing power, she adds. In the past, companies passed on tariffs to consumers via price increases. But given slower macro conditions globally, brands cannot increase prices as aggressively this time.

Lackluster style innovation has also hurt sales for some luxury goods companies. “Niche brands like Miu Miu, owned by Prada, are taking risks with their products, but that hasn’t yet translated to the industry overall,” explains Chou. Additionally, brands like Chanel and Louis Vuitton, once exclusive, are now so common that customers may not be as eager to purchase their products.

“I believe brands continue to have value, and luxury will make a comeback,” she notes. “But I expect a slow recovery rather than a quick, hockey stick recovery.”

Trump 2.0 holds promise and pitfalls

Stocks and other assets have soared on hopes a business-friendly approach from Washington could lead to lower taxes and higher profits. But that outcome is not a foregone conclusion.

“There are a lot of moving pieces right now and certain things are just unclear. Sometimes you must be comfortable with not knowing exactly what you’re going to do as an investor. I’m trying to sort things out before I make any decisions,” Kawaja says. “There will be winners and losers under the Trump economy, but there are also opportunities that stretch beyond administrations.”

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