Been keeping an eye on the markets lately? Then you’ve probably heard the phrase ‘Trump Trade’. Here’s what it means and how it might impact your investments.
Put simply, the Trump Trade is how the market is reacting to Donald Trump’s US presidential election win. Investors have been betting that his return to the White House will bring lower taxes and deregulation, which could be a tailwind for some industries and stocks.
But as with anything in investing, there’s plenty more to the story. Some sectors will boom, others will struggle, and if you’re an Aussie investor then I reckon you need to tune in to how things could play out here at home.
And, because Trump is so unpredictable, you never quite know what’s happening next. So it’s important to constantly keep a close eye on developments.
What is the ‘Trump Trade’?
When Trump won in November, Wall Street roared to life. The Dow Jones jumped 3.6 per cent the day after the election, the S&P 500 gained 2.5 per cent and small-cap stocks surged even higher.
The theory behind the Trump Trade is that Trump’s policies – especially tax cuts, trade tariffs and much, much looser regulations – will generate a more pro-business environment that will fuel economic growth … and profits.
We saw a similar market reaction after his 2016 victory, with stocks in financials and energy, as well as small-cap stocks on the upswing. This time around, investors are again piling into sectors they think will benefit from a Trump-led America. And there’s some serious momentum behind it. Just take a look at these numbers:
Tesla added $450 billion in market value in a month. Bitcoin’s market cap jumped past $1 trillion. The S&P 500 added $15 trillion over the 13 months to November 2024. Nvidia, the AI chipmaker, saw its value soar $2.4 trillion over the previous 12 months.
Clearly something big is happening. But how can you make the most of it?
Which investments will benefit most from Trump’s presidency?
Some sectors and stocks are already thriving under Trump Trade 2.0, while others are feeling the heat.
Big tech and AI stocks
Tech giants like Tesla, Nvidia and Apple are riding the wave, even though Trump has a mixed history with Silicon Valley. Investors have been piling into AI-related stocks, believing the States will take a more aggressive stance on innovation and industry deregulation under Trump.
Energy and oil companies
Trump is a guy who’s big on energy independence, and that’s driving interest in oil and gas stocks. The US is the largest oil producer in the world, and investors will be expecting fewer environmental regulations, which could translate to cheaper energy production and more profits for the big oil firms.
Cryptocurrency
This one’s a bit surprising. Trump embracing crypto was a key piece of his 2024 platform, where he vowed to make the US the “crypto capital of the planet”. Shortly after the election, Bitcoin went past US$105,000 (but has since dipped back under the US$100,000 mark), and crypto-related stocks like Coinbase gained nearly 40 per cent.
How can you ride the Trump Trade?
There are a few ways you can take advantage of the Trump-driven market rally as an Aussie investor.
If you don’t already have US investments, now might be the time to consider it. An index fund or ETF (like one tracking the S&P 500) will give you fairly broad exposure to the US market. If you want to be more specific, find ETFs that are built around AI or energy.
One side effect of the Trump Trade is that it has strengthened the US dollar – which means a weaker Aussie dollar. But that’s good news if you already own international shares, because your returns will get a boost when converted back into AUD. It’s bad news, though, for Australian companies that rely on imports – think retailers and manufacturers – since they’ll have to pay more for goods priced in USD.
Here’s where Aussie investors need to be cautious. Trump has doubled down on tariffs, including a 25 per cent tax on steel and aluminum imports. While Australia is lobbying for an exemption, if we get caught up in a trade war then some of our local industries -especially mining and manufacturing – could take a serious hit. On the flip side, a weaker Aussie dollar makes our exports more competitive, which could help drive sectors like agriculture and resources.
Trump Trade 2.0 is in full swing. If you’re investing in US stocks, you could be riding the wave – especially if you’re in sectors like tech, energy and finance. But if you’re holding Aussie investments, you’ll want to pay very close attention to Trump’s trade policies and their impact on the Aussie dollar.
I reckon the most important takeaway from the latest US election is that you need to look beyond the immediate. Stay diversified, think long-term and always keep an eye on global trends. Yes, the Trump Trade is making waves – but, as always, smart investing is about making the right moves, not just following the hype.
