Five investment takeaways from Trump’s Congressional address

In his joint address to Congress, Donald Trump reviewed the first weeks of his second administration, and outlined additional policy measures and objectives. These largely reiterated existing priorities. We set out the most important takeaways from an investor’s perspective.

Reciprocal tariffs and trade barriers

• Starting 2 April, import tariffs and non-monetary trade barriers will come into effect. In providing examples of duties, President Trump mentioned average levels, suggesting such tariffs would be applied broadly to all goods. He failed to mention whether energy trade would be exempted, but made clear that agricultural products will be taxed.
• Countries singled out in the speech as having high duties included: the European Union, China, India, Mexico, Canada, South Korea, and Brazil, despite the latter’s trade deficit with the US - in other words, Brazil exports less than it imports from the US - in contrast to these other economies which all run trade surpluses with the US.
• President Trump expressed willingness to accept some temporary and in his view moderate disturbance from trade policy, including equity market volatility in our interpretation.

Budget and tax cuts

• Despite debt ceiling processes in discussion, President Trump mentioned balancing the US budget as an eventual objective of his administration. The US budget has not been balanced since the Clinton administration, when Larry Summers was Treasury Secretary.
• At the same time, the President reiterated permanent income tax cuts for all income categories as a key objective. Mr Trump specified eliminating income tax on tips, overtime and social security benefits for seniors. Interest payments on car loans would be tax deductible if the cars were made in America, incentivising manufacturers to build in the US. Tax cuts for US manufacturing were also mentioned.
• Squaring these two contradictory objectives, President Trump mentioned spending cuts such as those sought by DOGE (the Department of Government Efficiency), including inaccurate expenses in social security payments. On the tax revenue side, he mentioned again a plan to introduce a ‘Gold Card’ granting the right to live and work in the US in return for a USD 5 million fee. We view these measures as insufficient to achieve a balanced budget in the short to medium-term. Balancing budget would require very substantial cuts in larger government programmes such as Medicaid.

We view these measures as insufficient to achieve a balanced budget in the short to medium-term

Make America affordable again

• One of the key objectives of Mr Trump’s administration is to reduce prices of essential categories of goods and services for American households. In his speech, the President reiterated energy prices as a key target category, without elaborating on the others. White House statements make clear that housing affordability, that is anything contributing to shelter prices, healthcare and mobility (cars) are critical. The only mention in the speech about housing was on mortgage costs, which are a function of bond yields, themselves a reflection of inflation and real interest rate levels.
• The Trump administration plans to reduce long-term bond yields further as part of its goal to reduce interest payments, as well as cut US mortgage costs.

Capex and strategic sectors

• One of the key factors for US exceptionalism in past years has been the strong capital expenditure boom. In the speech to Congress, Mr Trump reflected the importance of continuing the investment boom going in the US, including by attracting foreign direct investment (FDI). The President spent some time commenting on the auto sector as a likely recipient of FDI.
• Strategic sectors mentioned, besides energy, included defence (Golden Dome Missile protection), shipbuilding and manufacturing more widely.
   

International relations

• After news that a consortium including BlackRock was buying Panama Canal ports, President Trump reiterated his determination to reclaim the Panama Canal, without clarifying further.
• President Trump reiterated his support for Greenland’s right to self-determination.
• There was no mention of Canada in any context.
• On Ukraine, the President mentioned the letter received from Ukrainian President Volodymyr Zelenskyy, highlighting a will to engage in a peace process and sign a minerals deal.

For investors, we conclude that volatility on equity markets might be tolerated and is secondary to the administration’s trade policy objectives, provided the disturbance from tariffs remains moderate. Tariffs continue to be transactional, as signalled by recent comments from Howard Lutnick, US Secretary of Commerce, on the Canadian and Mexican duties. For now, financial markets have taken tariff news as growth-negative, as we saw from both the sell-off in equities and fall in US real yields.

For now yields have fallen on the back of growth concerns but long-Term inflation expectations have remained stable

The impact on economic growth will largely depend on how long and how high tariffs remain in place, what kind of medium-term tax cut package Republicans can deliver through the reconciliation process this year, whether consumers see their purchasing power improve, and the strength of investment in the US. We continue to expect 2-2.5% real GDP growth for 2025.

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The Trump administration looks very serious in getting long-term US bond yields (10-20 year maturities) persistently down. For now yields have fallen on the back of growth concerns but long-Term inflation expectations have remained stable. We continue to expect falls in oil prices as OPEC+ has surprised markets by unwinding the voluntary supply cuts starting early April and could envisage further efforts of deregulation and competitive measures to bring some categories of domestic consumer prices persistently down in the US against others rising on the back of tariffs. We expect to see 10-year US Treasury yields fluctuating in a range of 4% to 4.6% over coming months as inflation settles.

We continue to advocate well-diversified asset allocations across fixed income, equities and for eligible investors, alternative investments including gold. Corporate bonds offer income sources and stability when equities are temporarily more volatile. Hedge funds can help take advantage of volatility for eligible investors. Overall, we believe that diversified, multi-asset strategies are a sound response as cash rates continue to fall in the light of looser monetary policy.