Special Update 12/2/24

What to expect from the new Trump Administration

Tax Cuts and Deregulation

We expect Trump to spend the first days of his administration reversing the executive orders that President Biden put into effect in the first days of 2021 (effectively reversing Trump administration policies). President Trump is likely to reverse most if not all of Biden’s executive orders (including those addressing energy and climate policies, immigration, AI, and regulatory procedures) early in a new administration. He promised “on day one, [to] sign an executive order directing every federal agency to immediately remove every single burdensome regulation driving up the cost of goods.” (Dudley, 2024)

On the first day, expect the administration to issue a memorandum to all departments and agencies directing them immediately to refrain from pursuing regulatory actions until the new team has a chance to review them. The memo will literally stop the presses on executive agencies’ regulations and the new administration may even have someone waiting at the Office of the Federal Register at noon to pull back any regulations submitted by the outgoing Biden administration but not yet published (Dudley, 2024).

Within the legislative branch the expected Republican majorities in both houses of Congress are likely to make use of the Congressional Review Act (CRA), as they did in 2017, to disapprove regulations issued in the final months of the Biden term. However, the Biden administration issued an unprecedented number of priority regulations in 2024, and those will be out of reach of the CRA. Revising or reversing them will take time, and the career staff at regulatory agencies may not always cooperate (Dudley,2024).

We expect President Trump to re-institute a regulatory budget, directing agencies to offset the costs of any new regulations by revising or eliminating existing ones. In his first administration, he also directed agencies to remove two regulations for every new one issued. Independent regulatory agencies, like the Federal Trade Commission, Securities and Exchange Commission, and Consumer Product Safety Commission, are not as accountable to the president as cabinet agencies, because their rules are not subject to interagency review by the Office of Information and Regulatory Affairs. There’s bipartisan support for requiring them to analyze the impact of their regulations and subject them to OIRA review, and Trump reportedly had an executive order drafted to do so in his first term. It could be ready to go at the start of his second term (Dudley,2024).

DOGE

Elon Musk and Vivek Ramaswamy, who were tapped by Republican President-elect Donald Trump to lead a new Department of Government Efficiency, have revealed plans to wipe out scores of federal regulations crafted by what they say is an anti-democratic, unaccountable bureaucracy. In a Wall Street Journal opinion piece published on Nov. 20, Musk and Ramaswamy said they and “a lean team of small-government crusaders” embedded at federal agencies will review regulations to identify ones they deem invalid. Musk and Ramaswamy said DOGE will also recommend mass layoffs across federal agencies and identify billions of dollars in government spending that is invalid because it was not authorized by Congress. They said they are aiming to complete the panel’s work by July 4, 2026, the 250th anniversary of the country’s founding (Reuters, 2024).

Moves by Trump and his appointees to eliminate existing rules will be met with legal challenges, as many progressive groups and Democratic officials have made clear. If Trump follows through on DOGE’s recommendations, it would likely trigger a flood of lawsuits across the country, yielding mixed results. In a 2022 decision, the Supreme Court ruled that agencies cannot address “major questions” with broad economic or societal impact without explicit permission from Congress. And in a landmark June ruling, the court overturned its own precedent and said courts no longer were required to defer to an agency’s interpretation of an ambiguous law. Musk and Ramaswamy said their review will focus on regulations that are invalid in light of those decisions, which were seen as major victories in a campaign by conservative groups to rein in the “administrative state.” But the Supreme Court’s holdings in those cases were nuanced, and it will take years for courts to sort out how they apply to individual regulations, lawyers and other experts said (Reuters, 2024).

Market Expectations

Wall Street is already making big bets on what take two for a White House led by Donald Trump will mean for the economy. Professional investors are warning about the risk of getting carried away by the momentum. While strong rhetoric on the campaign trail can cause these big swings, not all of the promises turn into actual policy. Plus, the broad U.S. stock market tends to move more on long-term growth in profits than anything else (Associated Press, 2024). Here’s a review of expectations for eight of the eleven S&P 500 sectors:

Technology

Tech could benefit from an anticipated loosening of antitrust regulation that discouraged big deals from getting done and threatened to rein in the power of Google, Apple and Amazon. What’s more, Trump is expected to clear the way for Big Tech to make more inroads in artificial intelligence technology — an area increasingly seen as a crucial battleground in the duel for global power between the U.S. and China (Associated Press, 2024).

Retail

Trump has proposed extending 2017 tax cuts for individuals and restoring tax breaks for businesses that were being reduced. He also wants to further cut the corporate tax rate. Those would be tailwinds for shoppers and businesses. However, Trump has proposed 60% tariffs on Chinese goods and tariffs of 10% to 20% on other imports. Neil Saunders, managing director of GlobalData, a research firm, said retailers would either take a big hit on profits or be forced to increase prices. Many companies, including Nike and eyewear retailer Warby Parker, have been diversifying their sourcing away from China. The National Retail Federation is forecasting higher prices for U.S. shoppers if Trump’s new tariffs are implemented. For example, an $80 pair of men’s jeans would cost $90 to $96 (Associated Press, 2024).

Energy

Trump has said he wants to “drill, drill, drill” starting on Day 1 of his presidency, so it’s expected that traditional fossil fuel-focused companies will get a boost and renewable energy outfits could be disadvantaged. Oilfield services companies including Haliburton and Schlumberger would likely benefit from initiatives to expand drilling in the Gulf of Mexico and Alaska. Natural gas companies including EQT and CNX Resources could benefit from facilities and pipeline projects. Meanwhile, clean energy companies, such as First Solar and many electric vehicle makers, could have a harder time growing if Trump cuts tax credits and other incentives for the industry (Associated Press, 2024).

Health Care

Drugmakers, insurers and other health care companies could benefit from fewer regulatory roadblocks to mergers and a lighter regulatory stance overall. The approval of drugs and vaccines could become less predictable, depending on the role anti-vaccine activist Robert F. Kennedy Jr. plays.

Industrial

Trump is likely to roll back or scrap tailpipe emissions limits for 2027 through 2032 imposed by the Biden administration. Companies like General Motors, Ford and Stellantis could more easily sell larger, less-efficient vehicles without paying hefty fines. Companies would also face less pressure to sell more electric vehicles to offset emissions from big trucks and SUVs, which make big profit margins. Tariffs are a different story. Trump has threatened tariffs on imported vehicles to force more production in the U.S. The threat of 100% tariffs on vehicles imported from Mexico is a big concern.

Financials

Bank stocks could benefit if Trump’s policies boost the U.S. economy and more customers apply for loans, and there is a likelihood of lighter financial regulation after 15 years of stricter oversight following the financial crisis of 2008-2009. Under Biden, banks were facing requirements to set aside more capital to reduce risk, but the Trump administration is likely to take a step back. Mergers and acquisition activity could also see a significant uptick and the odds the pending merger between Capital One Financial and Discover Financial gets stronger. Regional banks should benefit if a growing economy prompts the creation of new small businesses or the expansion of existing ones (Associated Press, 2024).

Materials

Construction companies, including homebuilders KB Home and PulteGroup, could benefit from tax incentives and more friendly regulations. A surge in development
could help relieve some pressure on a housing market pressured by a lack of supply for new homes. A boost in construction could also help suppliers of raw materials including steel and aggregates used in concrete. Plans for an immigration crackdown could worsen an existing labor shortage and result in delays for projects (Associated Press, 2024).

Crypto

Trump, once a crypto skeptic, has pledged to make the U.S. “the crypto capital of the planet” and create a “strategic reserve” of bitcoin. Trump promised that, if elected, he would remove the chair of the Securities and Exchange Commission, Gary Gensler, who has been leading the U.S. government’s crackdown on the crypto industry and repeatedly called for more oversight. Money has poured into crypto assets since he won. Bitcoin, the largest cryptocurrency, has surged above $86,000. Shares of crypto platform Coinbase have surged more than 60% since the election (Associated Press, 2024).

Sources:

• https://www.fastcompany.com/91227825/trump-second-term-wall-street-bets-tech-retail-health-care
• https://www.forbes.com/sites/susandudley/2024/11/12/what-to-expect-on-the-regulatory-front-in-a-second-trump-term/
• https://www.inc.com/reuters/how-quickly-can-trumps-musk-led-doge-panel-slash-regulations/91023141