After a week, it’s really beginning to sink in: Donald Trump has won a second term as President of the United States. Although public polling had been tight for quite some time, the clarity of the result this time caught many of us by surprise. Financial Planning Magazine polled “wealth management professionals” in the days leading up to the election: while 54% of them favored Trump as “better for the industry”, 61% thought that Harris would win.
In 2016, when Trump won his first term, Horizons published a blog post with our immediate reaction, and followed that up with a five-part series analyzing the details of the policy & legislative proposals that he had made in that election season. This time around, Forbes has a great brief on “Project 2025”, the Heritage Foundation’s blueprint for Trump’s administration, and the Wall Street Journal has a careful review of some of Trump’s key “promises, proposals and threats” — so rather than dig into each and every one of those issues on our own blog, we’re going to focus on a couple of larger issues.
- Broad Market & Economy Impacts
The US stock markets bounced higher in the immediate aftermath of the election, but it’s not clear whether that was simply relief at the clarity of the results or something about Trump’s proposals. There are a handful of market sectors and specific stocks that moved dramatically on the election news — not always predictably, though, because big institutional traders are, in the words of Jame Suriwiecki, “trying to judge not only what a volatile, often distracted president is going to decide to do, but also how much his administration will actually be able to implement.”
There is disagreement about what the economic proposals of this Trump presidency might mean, as well. It’s clear that Trump’s promises to “cut taxes, crack down on immigration and hike tariffs” will cause inflation to increase dramatically again. Bank of America and Citi are urging their clients to trim their stock holdings now, in the face of probable losses, but Goldman Sachs is saying that in the short term the odds of a bear market are low. The US stock markets have been hitting new all-time highs recently; perhaps this means that we’ll see a quick “correction”, and drops of 10% to 15% from these highs, but not much more.
- ESG & Other Regulatory Impacts
A handful of clients we’ve met with in the last week have asked whether the new Trump administration will be able to put us out of business — to finally “make ESG illegal” in some sense. While it’s pretty clear that Republicans have been pretty firmly against ESG / sustainability-oriented investment approaches in the last few years, it’s also not clear how effective this can be.
The Department of Labor has jurisdiction over the rules around the investment of workplace retirement plans. During the first Trump administration, the DOL tried to put a rule against ESG investing in retirement plans onto the books; that rule was challenged, and lengthy litigation ensued. The Biden administration’s new leadership at the DOL changed the rules, so ESG investments were clearly allowed, if certain conditions could be met. These rules will, undoubtedly, be revisited in the second Trump administration.
The Securities and Exchange Commission has broad authority over almost all aspects of the American investment industry. The SEC’s field teams have been looking into the ESG part of the industry for the last few years, hoping to ensure that we’re providing the sort of investment service that we’re promising. This new Trump administration could propose some new and tighter rules about ESG investments, though these would take time to work through the system before they could be enforced.
Perhaps most interesting, though, is a fundamental tension at the heart of the proposals that the Trump team has put forward. On one hand, they want to use the SEC and DOL to make it harder for SRI / ESG firms to do our work; on the other hand, they want to dismantle almost all regulatory agencies, or at least defang them. But an SEC that has no authority can’t create or enforce new rules. So while we anticipate that there will be some additional paperwork required of us in the short run, we don’t think that there’s any real danger that we’ll be prevented from providing investment services to our clients.
- Large-Scale Financial Planning Impacts
Perhaps more worrisome is one of the weirdest ideas: Elon Musk appears to be in line for a job with the Trump administration, in some sort of new “Government Efficiency” office. Musk has said that he can cut “at least $2 trillion” of Federal spending. Brett Arends of MarketWatch points out that there are really only two ways to do that: cut almost every bit of spending that isn’t Social Security and Medicare, or cut those two mammoth programs. Trump himself has promised that both will be safe from cuts in his new administration, but both are facing funding issues which can’t realistically be solved without some difficult choices and complicated changes.
Many of our clients’ long-term retirement plans involve important contributions from Medicare and Social Security, as well as other parts of the American social safety net (such as it is). Overall, about 20% of Americans rely on Social Security for an important source of income, and about 25% rely on Medicare for health care coverage. To intentionally break these programs — in the name of tax cuts, probably? — is malicious and cruel. There are a number of changes to both the tax revenue and the benefits that have broad bipartisan support — but it appears that Trump’s team may be willing to ignore those in order to gut the system.
- Possible Mitigating Factors — and What Is to Be Done
While it’s pretty clear that Trump thinks he will have “near-total power”, and the recent Supreme Court ruling at least seems to point in that direction, there are a few ways in which the existing system will probably at least slow the most egregious of the proposed changes.
Presidents have broad powers to impose tariffs, supported by existing legislation, and to enforce aggressive immigration policies. In both cases, opponents (including foreign governments) have promised vigorous legal action, which will at least slow the pace of change. And presidents do control who’s in charge at the SEC and the Department of Labor, and therefore can control rule-making to some extent. But in both agencies, getting new leadership confirmed by the Senate will take a while, and new rules require long public comment periods, so any impact on actual regulation will likely be gradual at first.
On the other hand, changes to massive, long-standing, and incredibly popular programs like Social Security and Medicare can’t be accomplished by presidential action alone — they would have to be made by the Congress. And while it appears to be possible that both the Senate and the House will be nominally in the control of the Republicans, this may not give them the leverage that Trump would like, since the majorities will likely be slim enough to “empower backbenchers and rabblerousers” who can refuse to vote for anything that falls short of their reactionary agenda.
So Trump won’t be able to enact his entire agenda, and he will have to fight hard to get any of it done. That gives us an opening — we can fight hard, too, to defend the future. All is not lost! Policies that are focused on the common good are still good for business. And investing with an eye on ESG impact still appears to have a positive impact on our profits. While we had hoped for a supportive environment for the difficult work of making the world a better place, when it comes down to it we were faced with some hard work anyway, and Trump’s victory puts that into stark relief. We have a lot of work to do; are you ready to work with us?
