On 5 November 2024, the US went to the polls and elected Donald Trump as president for a second time.
Since the start of his second term on 20 January 2025, Trump has already introduced some significant policies.
The United States is a global superpower so political changes in the country naturally have far-reaching effects. As such, you might be concerned about how the new Trump administration will influence stock markets.
Read on to learn how the Trump administration could affect your portfolio and why it’s important to take a long-term approach to investing.
Investment markets initially reacted positively to the Trump administration
During the election campaign, Trump made some significant promises to reduce inflation, bring taxes down, and tighten immigration laws. Much of his campaign also focused on reducing regulation on private companies.
As a result, there was some optimism about a second Trump administration immediately after the election as many believed that deregulation and tax cuts would improve economic growth.
Indeed, according to Fidelity, the S&P 500 was up almost 5% in the five days following the election. This increase may have been driven by businesses that stood to benefit from Trump’s proposed policies, including energy companies. Additionally, markets tend to increase slightly after an election result as there is less uncertainty than there has been in the run-up to polling day.
As a result, if you’re invested in US stocks or funds, you may have seen an increase in the value of your portfolio in the immediate aftermath of the election.
Uncertainty about Trump’s policies is causing market volatility
Since the beginning of his second term, Trump has made headlines as he discusses imposing tariffs on several countries including Canada, China, and Mexico. Trump argues that these tariffs on foreign goods – paid by the companies importing the goods – will make non-US products more expensive and encourage growth in the domestic economy.
However, there are fears that these tariffs could lead to a trade war as Canada and China have already announced their own tariffs in retaliation. Plus, some investors fear a recession could be imminent. The markets have reacted to these concerns. The BBC reported that, as a result of the increased uncertainty, the S&P 500 had fallen for a second day on 4 March 2025. The index finished at its lowest level since November.
Yet more apprehension arose when Trump put a temporary pause on some tariffs to Canada and Mexico, which further eroded trust in US markets.
As a result, there has been a major sell-off of US equities and this has affected stock markets around the globe, including here in the UK. According to the Independent, the value of the FTSE 100 fell by 0.92% on Monday 10 March 2025. Markets in Germany and France experienced losses too.
In the coming months, Trump’s policies and the confusion around them could influence the global economy and may lead to more market volatility. Consequently, you might notice more fluctuations in the value of your investment portfolio, and this may concern you.
However, before you make any changes to your investment strategy, it’s important to consider whether this volatility is likely to affect your ability to work towards your long-term goals.
Volatility caused by global events is typically short-lived
It’s only natural to be worried when global events affect your investment portfolio. For instance, when Trump announced new tariffs and you saw the value of your investments fall overnight, you might have been concerned that you were going to lose money over the long term.
Some investors panic during these moments and decide to cut their losses by moving to cash. However, changing your investment strategy may not be sensible because volatility caused by elections and other global events is typically short-lived.
When Trump was first elected in 2016, investors panicked and markets fell overnight. Yet, as analysts reviewed Trump’s upcoming policies and the initial unpredictability subsided, investor confidence returned and markets quickly rallied.
We see the same trend during significant market upsets such as the 2008 financial crisis. Data from the London Stock Exchange (LSE) shows that between 1 January 2008 and 28 February 2009, the FTSE 100 fell by 34.86%.
If you were invested in UK markets during this period, you likely would have experienced significant losses.
Yet, by 1 January 2011, the markets had recovered and grown by 0.34%. So, if you’d sold your investments during the initial downturn, you could have missed out on potential growth in the future when markets recovered.
While past returns don’t guarantee future performance, the historical data suggests that, even after significant market downturns, the value of your investments will normally recover. Consequently, your portfolio will typically grow in the long term, no matter what happens.
For instance, Curvo reports that between January 1999 and January 2025, the MSCI World Index had a compound annual growth rate of 7.69%. This growth occurred in spite of the fact that in this period, the world experienced:
- The dot-com bubble
- The 9/11 terrorist attacks and subsequent wars in Afghanistan and Iraq
- The 2008 financial crisis
- The Covid-19 pandemic
- The war in Ukraine
- Seven US presidential elections
- Seven UK general elections.
This demonstrates that, while global events including elections could create short-term volatility, markets will normally recover. As such, you may be likely to meet your financial goals provided you take a long-term approach and hold your investments, rather than panic selling.
Get in touch
If you’re worried about market volatility caused by political uncertainty, we can reassure you and check you’re on track to meet your goals.
Please contact us at hello@ardentuk.com or call or WhatsApp us on 01904 655 330. As an award-winning financial advice company with advisers included in the 2024 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.