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Investment insights from Capital Group

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U.S. Equities
Three views on where to invest under Trump 2.0
Jared Franz
Economist
Richmond Wolf
Equity Portfolio Manager
Chitrang Purani
Fixed Income Portfolio Manager

One month into President Trump’s second term, investors are spinning from one news cycle to the next. From higher tariffs to massive cost cutting and other sweeping initiatives, Trump’s policy goals come with significant investment implications.


Center stage are executive orders that will impact companies in a broad range of industries, from aerospace and defense to industrials and banking. Waiting in the wings are year-end expirations of major provisions of the Tax Cuts and Jobs Act and expanded funding under the Affordable Care Act.


Which sectors could rise or fall under Trump 2.0?


The chart above illustrates sectors that could rise or fall under Trump 2.0. The first column lists the sectors/industry groups, while the second offers possible scenarios for the sector or group, and the third column indicates if the outlook for each is positive, neutral, or negative. A positive outlook is represented by a triangle, a neutral outlook is represented by a square and a negative outlook is represented by an upside-down triangle. Aerospace and defense’s scenario is increased foreign and domestic defense spending, which is considered positive. Banking’s scenario is for fewer regulations and lower capital requirements, which is also considered positive. Health care’s scenario are deregulation and lower prices, which is considered neutral. Renewable energy is reduced government subsidies, which is also viewed as neutral. Semiconductors’ scenarios are lower input costs and risk of oversupply, also neutral. Oil and gas’ scenario is increased domestic energy production could lower prices, also neutral. Telecommunication services scenarios are commercialization of airwaves and less regulation, which is also viewed as neutral. The scenario for Magnificent Seven companies is the potential for higher costs, which is viewed as negative. Homebuilders’ scenario is that immigration restrictions may increase labor costs, which is also viewed as negative.

Source: Capital Group. As of 8 November 2024. *Higher costs may occur if certain companies are required to pay into the Federal Communications Commission’s Universal Service Fund. For illustrative purposes only. Outlooks of individual investment analysts and portfolio managers may differ.

The ultimate winners of Trump 2.0 are likely companies that can successfully navigate policy and technology shifts, and bottom-up analysis can help separate the long-term winners. Three Capital Group investment professionals offer their take on opportunities and vulnerabilities as the Trump administration seeks to drastically reshape foreign and domestic policy.


1. America first approach brings manufacturing to the fore


President Trump's term may signal a philosophical pivot from free trade to protectionism. That means tariffs and other trade barriers are likely here to stay.


An “America first” policy aims to increase manufacturing jobs. “There’s an urge to regrow the manufacturing base the United States established in the 1950s and 1960s,” says economist Jared Franz. Beneficiaries may include construction and industrial companies tied to the build-out of data centers, autos and pharmaceuticals. For example, Caterpillar could see an increase in demand for its construction equipment, and Carrier Global’s heating and cooling systems, could also benefit.


It is not just companies based in the US that are taking part in this industrial renaissance. Looking forward, more companies may emulate Taiwan Semiconductor Manufacturing Company and Siemens by establishing operations in the United States to access the US market.


Manufacturing could get a boost under an “America first” agenda


A line chart shows the percentage of total U.S. employees employed in goods manufacturing from 1950 to 2024. The line chart starts at 31% in 1950, climbs slightly to a peak level of 32% in 1953, and then gradually but consistently falls, reaching 20% in 1981, and further declining to the current level of 8% in 2024.

Sources: Capital Group, Bureau of Labor Statistics, U.S. Department of Labor. Figures are based on non-farm payrolls and are seasonally adjusted. As of 31 December 2024.

Franz notes that the United States’s enviable economy could likely withstand some bumps in the road related to tariffs and immigration as many of the impacts are targeted and hyper-local to a region or industry. For example, certain industries that rely heavily on immigration, such as homebuilders, could face labor shortages, which would lead to higher costs.


2. Deregulation could accelerate innovation


A new era of deregulation is expected to have sweeping impacts on the economy. Valuations are likely to rise and fall as investors digest the sometimes contradictory signals of tariffs and a looser regulatory environment.


Trump policies could accelerate innovation across artificial intelligence and possibly even pockets of health care, such as stem cell research which is of interest to the new Secretary of Health and Human Services, says equity portfolio manager Rich Wolf. Within AI, society could soon see a significant increase in robotics across commercial, residential and consumer sectors. Boston Dynamics, for example, creates robots for military, commercial and research applications.


Investors tend to underestimate the long-term impact of new technology


The information graphic shows initial forecasts and actual numbers in four areas of technology. For the number of users of PCs and the internet in 2000, the initial forecasts were for 225 million and 152 million, respectively. The actual numbers were 354 million for PC users and 361 million for internet users. These numbers represent an underestimation of users by 36% and 58%, respectively. For mobile phones, initial smartphone shipments in 2013 were forecast to be 657 million with an actual total of 1,019 million shipped. These numbers represent an underestimation in shipments of 36%. For revenue of the top three cloud providers in 2020 the initial forecast was $90.2 billion, but the actual value was $115.6 billion. These numbers represent an underestimation of revenue by 22%. An initial forecast for artificial intelligence in 2030 is $1.8 trillion, but the actual value and potential underestimation are unknown and represented by question marks.

Sources: Morgan Stanley AI Guidebook: Fourth Edition, 23 January 2024; Next Move Strategy Consulting, Statista. Initial forecast dates were February 1996 for PC and internet users; January 2010 for smartphone shipments; March 2017 for cloud revenue; and January 2023 for AI market size.

Once a novelty, Waymo’s autonomous vehicles are now widespread throughout San Francisco and Los Angeles. The company is owned by Alphabet. In future, the key for the industry will be to scale profitability while maintaining the safety focus that builds trust with the public.


Many health care stocks remain under pressure as subsidies tied to the Affordable Care Act come under scrutiny. “Health care is a big lightning rod, but valuations are attractive for some companies within the sector,” Wolf says. For example, cell therapy companies and medical technology companies have largely sidestepped regulatory concerns. Medical technology companies developing products for robotic surgery include Intuitive Surgical and Stryker.


Trump has also pushed for a broad increase in defense spending among NATO members, which could benefit European-exposed aerospace and defense companies. Overall defense spending in the US is unlikely to change, though budgets may move to newer technology like cyber, space and robotics. Stocks tied to space travel have surged since Trump took office with Rocket Lab USA, for example, up 8.93% year-to-date as of 21 February 2025, compared to the S&P 500’s return of 2.98%.


3. Look to high-grade bonds for stable income opportunities


Inflation and an evolving mix of tariff and immigration policies have created market uncertainty. Given the strength of the US economy, confidence that the Federal Reserve will lower interest rates this year has declined.


Absent a growth or inflation shock, interest rates are likely to remain near current levels, says Chitrang Purani, fixed income portfolio manager.


The Consumer Price Index (CPI) hit 3% in January, up from its recent trough of 2.4% in September. Core CPI, which strips out food and energy, was 3.3%. Purani thinks inflation will gradually decline close to the Fed’s 2% target, but it may take longer than expected — especially if Trump’s more aggressive trade policies are implemented.


Diversification from equities appears to have returned for quality bonds


A bar chart shows the average total returns for stocks (as represented by the S&P 500 Index) and bonds (as represented by the Bloomberg U.S. Aggregate Index) during periods of equity volatility, defined as a price decline of 10% or more in the S&P 500 with at least 75% recovery. Over the seven periods of equity volatility between 2010 and 2021, the average return for stocks was -17.4%, compared to bonds with a return of 1.4%. Over the two periods of equity volatility between 2022 and 2023, the average return for stocks was -17.2%, while for bonds the return was -9.4%. Over the one period of equity volatility in 2024, returns were -7.9% and 2.6% for stocks and bonds, respectively. Data for 2024 as of November 30.

Sources: Capital Group, Morningstar. Periods of equity volatility from 2010 to 2023 are based on price declines of 10% or more (without dividends reinvested) in the S&P 500 with at least 75% recovery. The period of volatility during 2024 refers to 15 July 2024 to 4 August 2024.

“Identifying the winners and losers across sectors and issuers is more important than ever in this environment,” says Purani, who favors high-quality bonds over riskier, lower-rated peers when constructing a bond portfolio. That is largely because credit valuations are tight across markets as investors have mostly priced in an optimistic growth scenario. Higher Treasury yields also translate to solid income potential, so investors do not have to sacrifice quality. 


Bonds are also a compelling diversifier relative to cash and equities, Purani says. “Short and intermediate maturity Treasuries currently have attractive yields that largely price in the potential for stickier inflation and higher federal fund rates for longer. They also offer upside potential if we enter an environment where growth disappoints” In that scenario, Treasury yields may begin to fall, which would boost bond prices.


What’s next for investors


President Trump has implemented several policy changes that are likely to have lasting and complicated impacts on society and businesses. There is a risk these policies could have unintended consequences, and investors should be mindful of valuations amid the potential for heightened volatility.


“The investing world of the last few decades is fundamentally changing, but that doesn’t make things better or worse, it just raises uncertainty. If there’s one thing I’m reminded of though, it’s that markets and economies have shown resilience and continue to evolve and adapt,” Franz says.



Jared Franz is an economist with 19 years of investment industry experience (as of 12/31/2024). He holds a PhD in economics from the University of Illinois at Chicago and a bachelor’s degree in mathematics from Northwestern University.

Richmond Wolf is an equity portfolio manager with 19 years of investment industry experience (as of 12/31/2024). He also covers U.S. medical technology companies and REITs as an equity investment analyst. He holds a PhD from the California Institute of Technology and a bachelor's from Princeton.

Chitrang Purani is a fixed income portfolio manager with 21 years of investment industry experience (as of 12/31/2024). He holds an MBA from the University of Chicago and a bachelor's in finance from Northern Illinois University. He also holds the Chartered Financial Analyst® designation.


Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.