I’m an Investor: 6 Reasons I’m Concerned About My Stocks If Trump Wins
Written by
Laura Beck
Edited by
Gary Dudak
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Investors are always keeping a close eye on factors that could impact the stock market. But with the 2024 presidential election approaching, they’re watching their portfolios like hawks.
While some experts see some potential benefits in a Donald Trump presidency, others raise concern. GOBankingRates spoke to an expert about why he’s worried for his stocks if Trump wins in November.
Market Uncertainty and Volatility
Anthony Termini, investment analyst, stock market commentator and expert at Annuity.org, told us that “the market hates uncertainty.” Trump’s first term was marked by some volatility, with markets often swinging in response to his comments. Termini suggested this could be even more pronounced in a second term. “I’d expect more of that, maybe only on steroids,” he said.
This volatility could make it challenging for investors to maintain a steady course, potentially leading to emotional decision-making and increased transaction costs as they try to navigate the ups and downs.
Potential for Policy Extremes
Termini has some concerns about Trump’s ability to attract experienced advisors for a second term. “If Trump has trouble finding talented, experienced, long-time public servants to advise him in a new administration, then there could be fewer guardrails and his policy decisions could border on the extreme,” he said.
Inflationary Pressures
Several of Trump’s proposed policies could contribute to inflationary pressures. “Many of Trump’s stated policies are demonstrably inflationary, and could have long lasting effects,” Termini said. He gives two examples:
- Immigration Policy: “Removing millions of people from the workforce in an effort to deport those that entered illegally would shrink the labor supply without regard to demand. A tight labor market would likely cause wages to increase.”
- Tariffs: “New tariffs … will add to wage inflation as domestic businesses try to fill the production void created by fewer imports coming into the market. In addition, tariffs will increase the cost of goods for businesses and consumers.”
While some inflation can be good for certain stocks, excessive or prolonged inflation can erode the value of investments and lead to economic instability.
Supply and Demand Imbalances
The combination of a reduced workforce and increased tariffs could create supply and demand imbalances. “The mismatch between supply and demand will have a ripple effect across the economy that could be recessionary,” said Termini. “But this might not ease wage pressure or price inflation. We could see higher prices in the face of declining GDP.”
This is all to say: High inflation combined with slow economic growth is challenging for investors.
Potential Federal Reserve Interference
Termini shared that one of Trump’s stated goals is to reduce the independence of the Federal Reserve. “Loosening monetary policy for political expediency without regard for the economic consequence could result in enormous spikes in temporary GDP,” Termini said. “But the sugar high that might create would almost certainly lead to a prolonged period of inflation.”
The Fed needs to operate independently to keep the economy stable over time. If politicians start influencing its decisions, there might be some short-term economic boosts that look good at first but could harm the economy’s long-term health. This could lead to a cycle of rapid growth followed by sharp downturns. This kind of economic instability makes it challenging for investors to plan and manage their portfolios effectively.
Exacerbated Business Cycles
The combination of these factors could lead to more extreme business cycles. “The potential troughs could be deeper than normal,” said Termini.
This means investors might face more frequent (and severe) market downturns.
The Final Word
At the end of the day, American politics is just one piece of the stock market puzzle. The market is affected by many factors, including global events, technological breakthroughs and changes in consumer behavior. All of these factors — sometimes along with other surprises — combine to paint a full picture of what’s happening in the stock market at any given moment.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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