Global equities series: An America-first world order and global markets

This is the first of an eight-part series that covers the themes and challenges facing global equities in the second Trump administration. Part 1 covers the impact of an America-first world order while Part 2 looks at Trumpism's issues. In Part 3 we delve into immigration, the Federal workforce and US labor markets. Part 4 unpacks deregulation, oil demand and inflation pressures. Part 5 covers the US fiscal policy, debt and deficit and Part 6 looks at foreign economic policies and trade concerns. In Part 7 we deep dive into geopolitics and geoeconomics and Part 8 unpacks portfolio diversification in America-first global equity markets. 

We expect Trump to enter his second term turbocharged by a clearer, stronger mandate than in his first, more eager and better prepared to enact radical reform, and to try to establish an America-First world order, welcoming disruption. Yet, it is uncertain which policy pledges he can implement, when and how. Several involve offsetting or conflicting macro implications. The net effect could be reflation, inflation, or stagflation, depending on implementation. Immigration and trade curbs may cut potential growth or boost inflation. Tariff threats may improve export market access, but deregulation could boost investment, jobs and immigration, capital inflows, and thus, the trade deficit. Given the trade-offs and contradictions, we expect Trump to be partly constrained and guided by US financial markets – stocks as a metric highly visible to the public, bonds due to US debt and deficits, and the dollar due to its impact on inflation, bonds, and stocks.

Promises made, promises kept: “Should one take Trump seriously or literally?” was a refrain in his 2016 campaign. The first term argues literally; Trump tried to enact his pledges. Events since the election also call for a literal interpretation: His victory speech salvo “Promise made, promises kept”; the speed and character of nominees; drivers of his victory offer pointers for governing style, policies, and their macro and financial market effects.

Trump’s mandates: We think legitimacy and authority are crucial to Trump. Doubts about his mandate bookmarked his first term. His 2016 swing-state margin was only some 77,000 votes, and he lost the national popular vote. Yet he insisted it was a landslide and that far larger crowds attended his inauguration than Obama’s, in our view, to instill legitimacy by shifting political perceptions of the facts on the ground. In 2020, he lost the swing states by just some 44,000 votes, a margin so narrow that it likely emboldened him to reject the result and stir up support in the court of public opinion. Now, he brandishes the first Republican peacetime popular vote majority since 1988, a “red sweep” control of the White House, the House, and the Senate, possible opportunities to further shape the Supreme Court, and reshape the Federal Reserve (Fed). Plus, we think it worth bearing in mind that Trump is perhaps the most unconventional politician in US history. He is set to be the first to have had only two jobs in politics, both as president and only the second ever to have returned after having lost a reelection bid. His governing style may well be more aggressive than before because he has won such a second mandate, even though, in historical terms, it is narrow.

Governing—personnel as policy: To simplify, presidents need Congress to change domestic policy, especially fiscal policy, but enjoy more autonomy in foreign policy. Personnel choices point to muscular hawkishness on national security, trade, China, and confrontation on domestic reform. Trump’s domestic agenda will likely be constrained by narrow Republican majorities, and this may translate into greater aggressiveness on foreign policy and trade.

An America-First world order: We see Trump as more unilateralist than isolationist. The world economy is arguably multipolar: China, the eurozone (EZ), Japan, and India (the third-largest national economy by Purchasing Power Parity PPP), along with the US, account for the lion’s share of global GDP and growth. Yet, macro, financial, and geopolitical heft is still concentrated. The US is by far the world’s largest importer of goods, services, and capital at almost US$1 trillion per year. Most other major economies – China, the EZ, and Japan are net exporters and collectively need access to US markets. US stocks, bonds, and the dollar still dominate global markets. The US has 124 overseas military bases, 4x Russia’s 28 or the UK’s 32, 10x France’s or India’s 12, or 30x China’s 4. With no alternative to the US, many governments are likely to negotiate rather than retaliate. For his part, Trump is already moving to directly link – not compartmentalize – trade and investment with immigration, NATO, and other trading partners’ defense contributions and global security.

Policy, economy, markets and equities: We expect urgency in the radical reform agenda given a one-term limit, constrained by narrow Republican control of Congress, which may be challenged in the 2026 midterms, and a desire to secure the legacy and future of Make America Great Again (MAGA). On net, we expect efforts to moderate US inflation and bond yields and support stock markets as critical real-time metrics for Trump. Yet, we expect high volatility across currencies, bonds, and stocks, given the blunt radicalism of Trump’s ideas and style. We expect strategic country and sector selection to add value in an America-First world order and global markets as US policy shifts cut across economies and sectors.