How Trump’s Policies Could Reshape Market Dynamics

As a Portfolio Manager committed to meeting our fiduciary responsibilities, ARK analyses policy opportunities and risks strictly from the perspective of their potential market impacts and relevance to our investment strategies.

The Trump Administration is likely to have a highly positive impact on the US equity market over the next year and beyond. In fact, President Trump often refers to economic activity, employment, and the stock market as measures of government policy success, and he has stated that his goal is to lead one of the most successful administrations in history.

Believing that taxes and regulation have stifled smaller businesses—the backbone of employment in the US—the Trump Administration is likely to persuade Congress not only to preserve the tax cuts scheduled to expire by year-end but also to reduce other business and individual tax rates and deregulate industries where large corporations, with armed lobbyists, have benefitted from “regulatory capture” at the expense of small- to mid-sized companies. As a result, the bull market in equities is likely to broaden from just a few cash-rich, large-cap stocks to a wider range of stocks that have been hampered by supply shocks, the record-breaking surge in interest rates, and the rolling recession that has characterised the last four years.

While a broad-based expansion is likely to curb the federal deficit as a percentage of GDP, DOGE—the Department of Government Efficiency—could change the deficit’s trajectory more fundamentally and convincingly. Elon Musk has stated that government spending is taxation: to pay for spending, taxes must increase today, in the future, or through inflation, the most regressive tax of all. One of ARK’s core principles is that crafting a winning solution requires us to identify the problem with precision. The prospect of lower deficits should ease fears in the bond market, helping to reduce pressure on the 10-year Treasury bond yield and bring it to a level determined more purely by real GDP growth and inflation.

In the context of stronger and broader-based growth, the biggest surprise could be lower-than-expected inflation. The consensus view today is that rapid real growth will cause inflation; we believe that history suggests otherwise. From the beginning of the Reagan Revolution in the early 1980s until the end of the tech and telecom bubble, inflation fell in tandem with rapid real growth. Why? Disciplined monetary and fiscal policies, rising productivity growth associated with the explosive growth of personal computers, and the strength of the dollar all worked in tandem to drive inflation down.

In our view, those four variables are moving in the same direction today as they were during the 1980s, perhaps more dramatically. The technology revolution promises to keep monetary policy honest—think bitcoin and other crypto assets. DOGE and deregulation should inspire entrepreneurial activity in the private sector, enabling competition against large companies that have been shielded by regulation and other government interventions. Indeed, deregulation should lead to a resurgence in mergers and acquisitions (M&A), reintroducing “price discovery” to the equity market as strategic buyers target innovative companies that have been starved of capital by overly zealous antitrust regulators. The emergence and convergence of breakthrough technologies like artificial intelligence, robotics, energy storage, blockchain technology, and multiomics sequencing are likely to drive sustained productivity gains—in both the private and public sectors—to unprecedented levels. Furthermore, in response to an increase in the return on capital in the US relative to other countries, the US dollar should continue to strengthen. Indeed, as the odds of a Trump victory improved last year, the US dollar gained momentum.

Uncertainty during the transition could add to the wall of worry that has kept markets on edge recently. Will tariffs trigger another bout of inflation? We think not. Instead, those tariffs should be selective and incremental, their discrete effects ultimately offset by tax cuts, deregulation, and dollar appreciation. Indeed, we believe the market is likely to anticipate a successful Trump Administration, which could turn out to be one of the most successful administrations since the Reagan Revolution.