- How US markets have performed during the first six months of Trump’s second term
- Investors are latching onto a new tariff worry
- Next big test for the markets
- Common themes with best and worst performing US shares this year
- What’s happened to earnings forecasts for the S&P 500 this year and next
- Reading signals from the bond market
- Why cryptos and gold have soared under Trump
Dan Coatsworth, investment analyst at AJ Bell, comments:
“On his return to the White House in January, Donald Trump promised lower taxes, more jobs, a clampdown on immigration, and a new trade policy that would see the US become less reliant on overseas-supplied goods.
“Six months on, the US president has had quite an impact on businesses, consumers and financial markets, some positive and some negative.
“It’s been a whirlwind period and people are still trying to fathom the longer-term implications of his policies.
“The ‘Big, Beautiful Bill’ has been signed into law and made permanent Trump’s 2017 tax cuts and paved the way for extra spending in defence and immigration while cutting funding for health and accelerating the phasing out of clean energy tax credits.”
Where next for tariffs?
“Investor concerns are shifting from the structure of future tariff deals to how trade levies are starting to hurt corporate earnings.
“For a while, it looked as if investors were becoming more relaxed about tariffs. That’s because Trump has developed a reputation for having a bark worse than his bite. He threatens something and doesn’t follow through. Having extended the 90-day negotiation period for tariffs from 9 July to 1 August, the market now expects more of the same. It means 1 August could become 1 September and then 1 October.
“A multitude of foreign trade partners are in talks with the Trump administration, hoping to get a framework agreement by 1 August. The more Trump extends the deadline, the weaker his bargaining power to get a deal weighted in the US’s favour as trade partners could push for more time to negotiate. The message from the White House is that Trump is not in a rush to secure deals before the deadline, instead preferring to get each agreement right.
“Any deal that is higher than the 10% baseline tariff and less than the original Liberation Day tariff could be deemed a win by the foreign trade partner, whereas the US could be in a better position regardless of the final rate so Trump would still have something upon which to claim victory.
“While the lacklustre response to recent tariff news might imply investors are cool as a cucumber towards trade talks, there has been a wake-up call in recent days.
“The second quarter earnings season has been soured by companies quantifying the impact of tariffs on the profit and loss account. For example, car maker General Motors revealed that US tariffs have cost it $1 billion while sector peer Stellantis has taken a €300 million hit as tariffs have impacted trade. Technology provider Nokia said tariffs could impact full year operating profit by up to €80 million.
“The more companies say that Trump’s trade policies have or could hurt earnings, the more frustrated investors will be.
“The impact of tariffs has already fed through to the monthly inflation print, meaning consumers and businesses are once again having to stomach greater costs. That has stoked concerns the Federal Reserve will be in even less of a rush to lower US interest rates – another negative for investors.
“The next big test for markets will be countries who decide to retaliate rather than cave in to Trump’s demands. That has the potential to cause turbulence on equity and bond markets as Trump doesn’t like to be the loser in a fight. His natural reaction would be to jack up US tariffs further than before, and that would cause heightened geopolitical tensions and bother investors.”
What is the bond market saying?
“A bond tantrum immediately after Liberation Day forced Trump to take his foot off the pedal and give time for trade negotiations, even though he might not admit it. US Treasury yields saw large swings in April and caused palpitations across financial markets. There was panic for a brief moment and investors certainly don’t want that to happen again.
“There are two big risks to Treasury yields. One is Trump interfering with the Federal Reserve and finding a way to sack Jerome Powell as chair, someone he dislikes because they don’t agree on interest rate policy.
“The other risk is investors wanting a much higher reward for holding US government bonds if the US debt continues to balloon at a rapid clip. Trump’s new tax bill will add $3.4 trillion to the national debt over the next decade, according to analysis from the Congressional Budget Office. Higher bond yields would push up the cost of servicing the debt interest bill, putting even more pressure on the government.”
What’s happening with shares?
“Two of the three main US stock market indices are higher than at Trump’s inauguration (the S&P 500 and Nasdaq), but only by a small amount and the interim period has been volatile. The Dow Jones index has made little progress. Investors hoping Trump’s second term would lead to stock market riches are still waiting for big rewards.”
“Not everyone is sticking around. Investors took £622 million out of North American equity funds in May, the first outflows in six months, according to the Investment Association. Certain investors believe the US is now a much higher-risk investment prospect under Trump and they’ve taken money off the table and reallocated to other parts of the world including Europe. This is a dramatic shift in thinking given that the US has for years been a top place to make money.
“Dollar weakness will have also spurred UK investors to look closer to home for opportunities. A weaker dollar versus the pound makes US assets less attractive. For example, since Trump’s inauguration an S&P tracker fund priced in dollars would have generated a 5.7% positive return including dividends but excluding fees, whereas a pound-denominated version would have lost 4.5%.
“There are clear themes among the winners and losers on the US stock market over the past six months. The best performers on the S&P 500 include Palantir Technologies which is helping the Trump administration to collect data on all Americans. Super Micro Computer and Seagate Technology have soared thanks to AI-related exposure.
“The biggest losers are all down on Trump-related factors. Centene, United Health and Molina Healthcare are set to lose out from cuts to healthcare as a result of Trump’s ‘Big, Beautiful Bill’. Nearly $1 trillion is set to be cut from Medicaid over the next decade, meaning fewer people will have healthcare coverage. Shares in sportswear groups Deckers Outdoor and Lululemon have crashed as they source products from Asia which will be subject to the new tariff regime.
“The 2025 consensus earnings forecast for the S&P 500 has fallen by 2% since Trump began his second term as president. However, forecasts have gone up by 1.2% for 2026’s earnings, which suggests that analysts are becoming more comfortable with the potential new landscape and how companies might deal with tariff-related issues.”
What’s happening with cryptocurrencies and gold?
“While US shares have gone into the slow lane, albeit still making new highs, cryptocurrencies have shown greater price action. Bitcoin is up by 13% since Trump returned to the White House as bullish investors take the view that cryptos will become more relevant in the global financial system. Trump has talked about making America the crypto capital of the world, and now the market is hoping those words become reality.
“US lawmakers recently discussed various acts that could pave the way for a regulatory framework. Further debates will follow but corporate and investor interest is growing for all things crypto.
“More impressive is the price action on gold and other precious metals. Gold is up 26% since Trump’s inauguration for multiple reasons. The obvious one is investors looking to add protection to their portfolios. Gold has historically been a safe haven during uncertain times.
“There are other reasons to explain the metal’s galloping performance this year. Consider the fiscal incontinence of the Big Beautiful Bill, how DOGE achieved only tiny savings, and how the federal debt continues to pile up. Rising federal debt undermines investor confidence in the long-term value of the US dollar. Note that the US dollar index – which measures the value of the dollar against a basket of six foreign currencies – has fallen by 11% since 20 January.
“The gold price has also risen amid Trump pressure on Powell and the Fed for lower interest rates, and central banks buying gold to diversify their reserves away from the US dollar.
“Finally, Trump’s ruling by executive order worries a lot of people, and gold is their safety blanket.”
