In a recent report from Wolfe Research, three major phases of what the company calls the “Trump Trade” for 2025 have been identified. These phases represent the major shifts in market strategies that will occur as policies evolve under the new US administration.
Phase 1: Post-Election Phase
The first phase has already passed, and this was the phase immediately following the election. During that period, the market witnessed a rapid recovery, as investors expected Trump’s election victory to positively impact many sectors. Expectations focused on stimulating the US economy through tax cuts, increased government spending, and easing regulatory restrictions. During that period, stock markets rose significantly, especially the shares of large companies in sectors such as energy and infrastructure.
Phase 2: Discussing the Timeline and Implementing it
Phase 2 will be more challenging for the market, as the legislative and executive policy agenda begins to take shape, especially during the first 100 days of 2025. This period will likely see intense debates on key economic issues such as tariffs, international trade policies, and tax reforms. During this phase, concerns about the impact of these policies on the global economy and financial markets may increase.
Despite these concerns, analysts at Wolfe Research expect defensive growth stocks, including the “Magnificent Seven” tech giants, to continue to outperform in the first half of 2025. These stocks include companies such as Apple, Amazon, and Google, whose technology sectors are resilient to global economic changes.
Phase 3: Data that will determine the real impact
Phase 3 will be crucial, as the focus will be on economic data that will begin to determine whether the impact of Trump’s economic policies will be positive or negative on economic growth. This could include data on economic growth, employment, investment, and the impact on financial markets.
Expected Sector Shifts
As the second half of 2025 begins, policy clarity is expected to increase. This will increase interest in sectors that have made gains after the election, such as financials, industrials, and consumer discretionary stocks. These sectors could see a significant rebound when President Trump’s policies on deregulation and lifting trade barriers become clear, providing a major boost to the US economy.
On the other hand, there is expected to be some pullback in cyclical stocks that have directly benefited from previous policies such as tax cuts. Investors may view these stocks with caution in early 2025 due to the effects of volatile trade policies amid major economic shifts that Trump may impose.
Trade and Tax Risks
Other concerns may arise as a result of the tariffs and trade policies that Trump will push through to achieve his economic goals. Investors are also watching the impact of tax legislation on the US business environment. Trump may face opposition from some parts of Congress, which could directly affect the chances of passing a major legislative package. If lawmakers successfully implement the tax legislation, these changes could stimulate the stock market and boost investor sentiment significantly. However, concerns about higher tariffs on Chinese goods and other protectionist policies could lead to sudden declines in markets.
Impact on the global economy
It is worth noting that Trump’s policies will not only affect US markets, but could have global repercussions. While he is working to boost economic growth in the US through increased government spending and easing restrictions, the world could face significant challenges if US policies lead to trade disputes with traditional allies.
Risks related to fiscal policies
Another challenge that the market may face in 2025 is related to the fiscal policies pursued under Trump. If the Federal Reserve continues to raise interest rates at a slow pace, this may affect consumer demand for loans, which will reduce economic activity. This slowdown in consumer spending may cause a temporary recession in some sectors, but the US economy, according to some forecasts, may recover these losses in the last quarter of the year.
Overall, the “Trump trade” for 2025 is an investment that depends on a set of economic and financial factors that investors will have to carefully evaluate. Over time, it will become clear whether the policies that Trump intends to implement will be beneficial to the US economy or will lead to unwanted volatility. Ultimately, the initial periods of uncertainty will be decisive in determining the overall performance of financial markets in the coming months.
Wolfe Research’s forecasts indicate that investors will remain on the lookout, considering that any sudden change in policies or economic impacts could lead to a radical shift in market strategies. One of the main risks is the possibility of escalation of trade wars, especially with China and the European Union, which could tighten financial markets globally. The potential repercussions of trade tensions will also negatively impact growth in emerging markets, creating an unstable environment.
Wolfe Research forecasts that the initial period of policy uncertainty could lead to a decline in enthusiasm for cyclical stocks. Investors are expected to favor secular growth stocks, i.e. those that outperform with sustained growth independent of economic volatility. These stocks may continue to reap gains due to market strategies that protect them from significant economic risks.
