What Capital Group portfolio managers and analysts are watching closely in the second Trump administration.

With President Trump embarking on his second term, a handful of key themes are likely to dominate the financial landscape, with new tariffs, an immigration crackdown and deregulation all either underway or expected shortly. While policy shifts accompany every incoming administration, that’s especially true today as entire industries — not to mention, investors — are trying to divine the magnitude of potentially extensive changes.

As always, Capital Group investment professionals are paying close attention to the crosscurrents. But while the backdrop in Washington is critical, politics is just one of many factors that will set the tone this year. Industry-specific forces ranging from consumer demand to technical innovation could be far more impactful for many companies.

“Uncertainty is something of the word of the day,” says Capital Group investment director Jayme Colosimo. “We’re waiting to see how certain policies will play out. However, one of the things we really reinforce is that we don’t position portfolios for binary outcomes. We consider where we might be headed, really taking a range of scenarios into account.”

Economic growth could rise, but inflation is a risk.

By many measures, Trump has inherited a decidedly self-assured economy. Unemployment is low, the Federal Reserve cut interest rates three times in 2024 and consumers have been tireless even with some lower-end weakness.

A big question is how Trump policies could affect inflation — the topic that was top of mind for many voters in November. His administration is expected to implement a fiscal package that, combined with other forces, could mean peppier economic growth but also upward pressure on inflation and interest rates. The combination of pro-growth deregulation and public spending could offset any drag from higher tariffs and geopolitical uncertainty.

The hazy inflation outlook was made clear in December when the Fed halved its 2025 rate-reduction timetable from four cuts to two. Though the U.S. economy remains “remarkable,” according to Fed chairman Jerome Powell, he declared that further action will depend on inflation.

Tariffs have the potential to reshape the economy.

A cornerstone of Trump’s campaign was his promise to impose aggressive tariffs on imported goods along with investment restrictions and export controls on China. New tariffs may be one of Trump’s earliest actions, as he has vowed to enact them with or without Congressional support. Depending on their scope, tariffs could aggravate inflationary pressures.

Although Trump has said he will target specific countries — China, Canada and Mexico — multinational companies around the world, including those based in Europe, would likely experience ripple effects.

“I’m not sure the tariffs will be permanent, but they will result in a rearrangement of the import/export balance,” says equity portfolio manager Cheryl Frank. “That’s certainly an incremental headwind for a lot of countries, and I don’t think Europe will necessarily escape it.”

This could further incentivize the reshoring and “near-shoring” movements, which began under the Biden administration. Companies have embraced reshoring their manufacturing operations to bolster supply chains from geopolitical disruptions — such as the war in Ukraine and the pandemic — that revealed the downside of overreliance on overseas manufacturing.

Deregulation could extend across industries.

Under Trump, federal agencies are expected to roll back notable Biden-era regulations governing, among other things, the banking, oil and gas, and health care industries.

Financial institutions are likely to be subject to less regulation and lower capital requirements, which could bolster earnings. Mergers are expected to attract less antitrust scrutiny, possibly spurring deals and speeding the time to close transactions.

Deregulation is also expected to positively impact oil and gas. Trump has said he wants to roll back most Biden-era regulations targeting carbon emissions. Domestic drilling and mining will likely be encouraged, which could result in lower per barrel prices.

The health care industry also stands to be impacted. Many pandemic-era supports for Medicaid managed care programs are set to expire during the Trump administration, which the president has signaled he will likely not extend. This augurs a likely contraction in the Medicaid space.

The “red wave” may not equate to party unity.

Although the Republicans control all three branches of government, with a narrow House majority, the whole party doesn’t necessarily share Trump’s vision for the next four years. Many Republicans are committed to free trade principles, going against the president’s more isolationist beliefs.

This could become an obstacle to new trade agreements. The Republicans also lack consensus on raising the debt ceiling, an issue that could take center stage early this year. Trump may issue executive orders when he can, but that is not always possible.

“A one-party sweep doesn’t always equate to power,” Frank notes. “There are always one or two people who will hold up the process.”

Industry-by-industry analysis remains critical.

Despite the outsized impact of federal policies, it’s important to remember that the unique forces affecting individual industries are often of greater significance, says Capital Group equity portfolio manager Brant Thompson.

“I don’t think that obesity-related drug trends will change. I think dollars will continue moving to digital. AI is still a dominant force,” Thompson observes. “The government is involved in all these things, but it won’t be the most important force.”