Trump Upends Equity Investor Playbook

Investors trying to position their portfolios to manage the ongoing uncertainty are finding the playbook from US president's first term offers little help

- Bloomberg

President Donald Trump's mercurial approach to his signature tariffs whipsawed markets last week. And investors trying to position their equity portfolios to manage this ongoing uncertainty are finding the playbook from his first term offers little help.

What hasn't changed is Trump's strategy of pledging aggressive levies on trading partners and then quickly backtracking, either delaying them or canceling them completely. What has changed is basically everything else.

For starters, the tariffs he's proposed are going to impact a wider range of goods than during his first term. But more importantly, investors are in a completely different paradigm. Volatility is higher. The S&P 500 Index is on a red-hot winning streak, rising 53% combined in 2023 and 2024 and pushing valuations to lofty bull market levels.

Compare that with 2017, when the S&P was coming off a combined gain of just 8.7% over the previous two years, giving stock prices far more room to run as Trump took office.

To Tim Hayes, chief global investment strategist at Ned Davis Research, that means a defensive approach to allocating to risk assets. He said the firm's investment model will likely call for cutting equity allocations "if tariffs produce a trade war that leads to rising bond yields, a worsening macro environment and an exodus" from the technology sector and the US markets more generally.