MARK SEYMOUR: Trump’s return — policies, personality and market mayhem

As Donald Trump, now in his second term as the 47th US president, floats the possibility of pursuing a third term despite constitutional limits, markets, investors and policymakers brace for heightened uncertainty.

Trump’s provocative comments about circumventing the 22nd amendment, which bars presidents from being elected more than twice, underscore his unpredictable and combative style.

With aggressive policy ambitions, these moves collide with a fragile economy marked by a US debt-to-GDP ratio exceeding 120% and growing concerns over unsustainable public debt.

Trump’s agenda, erratic behaviour and institutional clashes, especially with the Federal Reserve, threaten to amplify volatility in an already strained system. 

Short-term gains

Trump’s first term delivered sweeping tax cuts and deregulation, igniting market rallies. Corporate profits skyrocketed, the S&P 500 surged, and unemployment hit historic lows. These policies, including the 2017 Tax Cuts & Jobs Act, slashed corporate rates from 35% to 21%, boosting after-tax earnings and stock buybacks. Deregulation, particularly in energy and finance, unleashed growth by easing compliance costs and encouraging investment. 

A second term promises an encore: deeper tax cuts, potentially extending 2017 provisions and lowering individual rates, alongside a proposed 25% universal tariff and broader deregulation. These could deliver immediate wins for sectors such as banking, fossil fuels and defence.

For instance, rolling back Dodd-Frank regulations could free up capital for regional banks, while easing environmental rules might spur oil and gas production. However, the price is steep. The Congressional Budget Office estimates Trump’s tax cuts could add $4-trillion to the national debt by 2035, with interest costs nearing $1-trillion annually.

High equity valuations, with the S&P 500’s forward price:earnings ratio above 20 times, leave markets vulnerable. Any sign of fiscal irresponsibility or inflation, fuelled by tax cuts or tariffs, could spike bond yields, souring investor sentiment. 

A recipe for chaos 

Trump’s feud with Federal Reserve chair Jerome Powell, whose term extends to mid-2026, remains a critical risk. Since 2018 Trump has demanded lower interest rates, even during strong economic periods. Now, speculation about firing Powell is resurfacing, despite protections under the Federal Reserve Act and legal precedents such as Humphrey’s Executor v US (1935), which insulate the Fed from political overreach. 

Attempting to remove Powell is likely to fail, but could still destabilise markets. A constitutional clash over Fed independence might trigger spikes in the VIX, bond yields and gold prices, as seen during past Trump-Powell spats. Markets crave stability, and Trump’s attacks deliver the opposite, injecting uncertainty that could ripple across asset classes. 

Inflationary pressures 

Trump’s tariff obsession, framed as a tool to revive manufacturing alongside automation, is a cornerstone of his platform. Yet the 2018 steel tariffs raised costs and shed jobs in downstream industries, while tariffs on allies such as Canada and Mexico sparked retaliation and supply chain disruptions. A new tariff surge could reignite inflation, forcing the Fed to tighten policy, which would curb consumer spending and GDP growth. 

Automation, championed by figures such as Elon Musk, might offset labour costs in the long run, but the US trails China and Germany in robotics adoption. In the near term, tariffs risk higher prices and a weaker dollar amid persistent trade deficits, weighing on US assets. 

The chaos factor 

Trump’s impulsive decisions and disdain for institutional norms create a unique market hazard. His off-the-cuff remarks, evident in April when a Powell rant briefly tanked equities, produce noise, not clarity. Some view this as strategic brilliance, but Trump’s reactivity is more likely. Investors can model policy changes but struggle to price in personality-driven chaos, which amplifies market swings. 

Trump’s dependence on executive orders and narrow legislative manoeuvres limits his policies’ durability. Without bipartisan support reforms risk reversal after 2026, exposing markets to policy whiplash. The fiscal outlook is grim: debt outpacing GDP, no clear plan for entitlement reform, and rising borrowing costs. If markets doubt US fiscal credibility, yields could soar, affecting treasuries, mortgages and equity valuations. 

Navigating the storm 

Trump’s potential return offers short-term market highs but long-term dangers. Enhanced tax cuts and deregulation may spark brief rallies, particularly in finance and energy, but fiscal strain, inflation and institutional conflicts loom. His unpredictable personality magnifies the uncertainty.

In a richly valued, debt-laden economy, volatility could dominate a Trump-led market. Investors must prepare for policy shocks and the chaos only he can bring. 

• Seymour is director of fixed income at NorthStar.