Investing In The Trump 2.0 Era
An evidence-based approach in an uncertain stock market.
MAIN TAKEAWAY
Investors have ample opportunities to roll the dice with their portfolios. You probably shouldn’t.
KEY TALKING POINTS
Tech is likely to continue to do well, but anything could happen.
Revisit your approach to ESG screening.
Don’t assume loading up on energy will skyrocket returns.
A tariff history lesson could likely repeat itself.
Cryptocurrency is a major wild card, but it’s worth looking at.
Focus on what you can control; diversification, patience, emotions, contributions, and reasonable spending habits backed by a financial plan.
FIRST THING’S FIRST
This post isn’t a political commentary. It’s for serious investors who want to explore current risks and opportunities in their investment portfolios.
WHAT’S HOT & WHAT’S NOT
How can I align my portfolio with industries, sectors, and themes likely to benefit from the Trump Administration? Excellent question.
Let’s start with “drill baby drill”. Just buy a bunch of energy companies and let the good times roll.
Not so fast.
Contrary to popular belief, oil & gas production reached record levels during the Biden Administration. The U.S. was actually the world’s leading oil & gas producer in 2023.
Before we adjust energy strategy in our portfolios, we need an old-fashioned supply and demand discussion.
According to MORNINGSTAR, energy companies are primarily concerned with increasing demand for their product. Based on current production levels, increasing supply is a disincentive to profitability; the thing that publicly traded corporations care about above all else.
Another promising theme is artificial intelligence, especially the STARGATE PROJECT. AI is intertwined in everything from health insurance to social media platforms like Meta, to the financial sector that bankrolls AI infrastructure development.
Knowing that AI’s tech tentacles reach throughout much of the entire market, a strong case can be made for maintaining diversification. A rising tide lifts all boats…
Pivoting once more to another energy theme, according to the DEPARTMENT OF ENERGY electricity demand will increase 15% - 20% in the next decade. This trend is being driven largely by new data centers, AI power consumption, and electric vehicle consumer demand.
EV demand is an especially interesting case. It’s really feels like a toss-up. The EV market is presenting investors with competing themes with no clear winner on the horizon.
Gas prices have INCREASED SINCE NOVEMBER, but EV new purchase tax credits are still an IRS INCENTIVE. Additionally, President Trump’s new best friend happens to own an electric auto manufacturing (solar too) company.
Despite campaign trail rhetoric about dismantling anything green, there are likely more reasons to remain bullish on EVs than not.
An even stronger case for EVs could play out if the FED happens to lower interest rates later this year. Low borrowing costs have historically benefited EV and solar more so than other industries.
ESG SCREENING ADJUSTMENTS?
There are two questions investors who care about SUSTAINABLE INVESTING can ask themselves right now.
Should I bother with thematic investing based on environmental and social constructs I believe in?
Has my view of exclusionary screening evolved and should I adopt a wider pool of stocks in my portfolio?
Regarding the former, clients can invest beyond our two stock-based model portfolios in a variety of investment themes such as sustainable agriculture, clean energy, & infrastructure. Think of this as “core & explore”.
Before you dive in, increasing portfolio aperture via thematic investing likely introduces excess risk beyond its diversification benefit. Fees and returns have been especially problematic. MORNINGSTAR has a short write-up worth a quick read.
To highlight a popular thematic investing option, let’s look at clean energy. After a monster return in 2020, performance since then has significantly lagged the market.
Source: Morningstar, February 2025, ticker: ICLN (blue line) used as a proxy for clean energy industry.
Despite potential thematic investing pitfalls, it’s an option. You can read about our thematic investing strategies HERE.
Per question #2, what we’re asking ourselves is does it still make sense to apply rigid environmental, social, & governance screening in our portfolio construction?
Take fossil fuels for example. Avoiding fossil fuels over the last 4 years resulted in the dual opportunity costs of missing out on returns as well as giving up voting rights (can’t speak up if you disengage).
Source: ETFreplay.com, total returns including all dividends, 2/12/2021 through 2/11/2025
There’s nothing wrong with sticking to a portfolio designed to exclude corporations we don’t believe in based on merit, risk, philosophy, or ESG considerations.
Investors should have the freedom to invest however they please.
In exchange for that freedom, we have to accept that the more we exclude, the greater the expected deviation from the market’s return. This can work for or against investors. Recently, it’s worked against the fossil fuel free crowd.
I’ve been offering both a negatively screened, fossil fuel free model (we happen to call this model ESG+ at the firm) as well as a general ESG model for nearly a decade. In that time, there hasn’t been a clear winner. It all depends on the historical time frame we assessing performance.
THE TARIFF EFFECT
It’s my opinion that the underlying social, political, and economic conditions influencing the effect(s) of tariffs are too complex for anyone to predict.
All I can do is offer a history lesson.
President Trump 1.0 implemented steel and aluminum trade tariffs in early 2018. Domestic manufacturers incurred higher production costs and suffered lower profit margins. Inflation climbed from 2.1% to 2.4%, and stocks lost over 5% in less than a month (late Jan - mid Feb) despite new tax cuts coming in hot.
Although the trade wars simmered down which restored some confidence, the FED raised rates four times in 2018. That prompted fearful stock investors to shift into bonds, intent on capturing higher yields.
The 4th quarter was especially rough for U.S. stocks, which lost -14.3% from Oct 1st through the end of the year.
Fast forward to 2025. Like 2018, U.S. stocks are coming off a 20%+ year. We’re also seeing the same tariff threats and retaliation effect. However, a few economic conditions are materially different from 2025.
The FED is either cutting rates or holding steady, and year-over-year inflation figures are at least 1% higher today than seven years ago.
Does all this mean that 2025 will be the same mess of fear and uncertainty that plagued 2018? Conventional wisdom says yes, but the reality is that we just don’t know.
On the flip side, President Trump keeps regular tabs on market sentiment and often adjusts his position in an attempt to appease investors and capital.
Unfortunately, a we’ll see attitude isn’t what anyone wants to hear. We all falsely seek the comfort of investing “knowns”, but there is no such thing in the short term.
So what does this mean? It means you can’t predict the markets. They’re too complex.
Accept uncertainty, stick to your investing strategy, and let long-term returns reward you.
CRYPTOCURRENCY?
Bitcoin is like black licorice. It makes some people vomit.
But, for the people who like licorice, they really like it.
I’ve mostly avoided the crypto conversation, but it’s hard to ignore the chart below.
Source: https://crypto.com/price/bitcoin, data as of 2/19/2025.
Most crypto activity is regulated by the SEC, newly headed up by Paul Atkins.
Atkins is pro-crypto, probably why President Trump picked him to make the U.S. the new “Bitcoin hub”. Like many new agency appointees, we should expect a light touch from a regulatory standpoint.
Following the rally leading up to last fall’s election, the currency has popped $100,000/coin. For some owners having held the currency for several years, this nominal threshold represents a significant profit-taking sell signal that could continue.
For others, Bitcoin’s current price is being viewed as a discovery pricing phase. This new uncharted territory might attract additional attention and speculation from previously crypto-adverse investors.
Before you dive in, crypto consideration should include a variety of cautions.
First on the list is volatility. If you felt queasy at all during the simultaneous stock and bond market declines of 2022, cryptocurrency is not for you.
Second, don’t get lulled into exotic crypto schemes. Typically, these pump and dump coins are incredibly difficult to time. Take President Trump’s COIN for example. It rose to $15 billion in value two days after launch, then crashed 72%.
Third, crypto could get killed if the finance sector ends up seeing it as a threat. The whole point of crypto is a replacement of existing currency and the middlemen who profit from it. Crypto investors buy the coin based on the perception of future adoption. Once the blockchain (where transactions take place) erodes the financial sector’s ability to extract profits from conventional transactions, expect massive government lobbying efforts to heavily restrict, if not destroy, digital currency.
Any objective, rational person should view cryptocurrency as too risky. Are humans rational investors? Probably not. At the same time, have plenty of investors profited handsomely? Absolutely.
If you’re going to invest, there are three things you should know.
Don’t invest more than you’re willing to lose, because worst case scenario is you could lose everything.
Consider an ETF because they’re easy to trade and can even be purchased inside an IRA/Roth IRA/401(k). There are PROS & CONS to this.
For sustainably minded investors concerned about the carbon intensity of Bitcoin, consider Ethereum as a quasi-alternative. In late 2022, Ethereum switched operating models, reducing energy consumption by 99.99%. The details are far beyond my scope of knowledge, but you can read more HERE.
DIVERSIFICATION IS STILL KING
Now to the repetitive, boring part of this post.
The single most consistent theme in the stock market over time is that there is always uncertainty. Relatively recently, the COVID-19 pandemic, Russia’s invasion of Ukraine, inflation, and endless recession fears have all contributed to market jitters.
However, since February 2020, U.S. stocks have returned 14.5% (using Ticker: VTI as a proxy for U.S. stocks).
The most damaging theme to achieving a market-like return I’ve seen in my 20+ years as a financial planner is investing based on emotion. Fear and greed are your enemies. Patience and diversification are your buddies.
Unfortunately, there is no perfect portfolio. A diversified portfolio is not immune to consternation. At any given time, you’ll own asset classes that lag other asset classes in your portfolio. Take the last three years for example.
Source: Dimensional Fund Advisors, Returns Web tool. Data from 1/1/2022 through 12/31/2024
It can be frustrating to see charts like this. One might think it’s pointless to own anything other than U.S. stocks, especially U.S. large-cap stocks.
It’s important to remember that what looks good today didn’t always do well in the past, and what looks bad today might produce above-average returns in the future.
Take a look at the performance of U.S. stocks for the entire decade that was ‘00 - ‘09.
Source: Dimensional Fund Advisors, Returns Web tool. Data from 1/1/2000 through 12/31/2009
Fast forward to today; it can be tempting to look at American politics, economic policy, and social movements and think geez this is crazy I need to do something in my portfolio.
Getting out of the market or suspending contributions “until things get better” triggers a series of questions you have to get correct to do better than sticking with your current strategy.
The likelihood that anyone can predict which asset classes will do better, timing your exit well, and then timing your re-entry equally as well is extremely low.
Messing up any of these moves introduces risk. Messing up a combination of them can put a big dent in your financial planning goals.
Let’s look at just one of these risks on its own; the risk of mistiming your re-entry.
If you invested $100,000 in 1999 and let it ride through 2023, you’d have $644,900. If you botched your buy-back-in date by 3 months, you’d only have $454,600. That’s a $190,300 mistake!
I can understand if you’re fearful given the current level of market uncertainty. Before you do something drastic in your portfolio, click HERE for additional context on the pitfalls of market timing.
So what should you do right now?
(Re)commit to diversification. It’s a strategy correlated with higher RISK ADJUSTED RETURNS, i.e., how much did I make per unit of risk taken.
Sexy? Absolutely not. Effective, absolutely.
In addition, accept that you don’t know what’s going to happen. Weathering occasional market declines is the trade-off to earning the long-term return powering your financial goals.
Last, to know if you should stay invested or not, answer these two basic questions:
Is capitalism being replaced?
Am I going to draw down more than 50% of my invested assets in the next decade?
If you answered “no” to both questions, you should stay invested with a fully diversified portfolio and ride out any market declines if you want the highest probability of earning the market’s long-term expected return.
If you answered yes to either question, then we definitely should talk. You can contact me HERE.
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