Recently, a client asked me, “With the U.S. elections and the Fed’s latest moves, what’s your take? And what should I do with my portfolio?” It’s a great question, given all the market dynamics we’re seeing. Here’s how we broke it down together.
The Fed’s Interest Rate Cut
On November 7, 2024, the Federal Reserve reduced its key interest rate by 0.25%, setting the federal funds rate between 4.5% and 4.75%. I explained, “The Fed’s signaling confidence that inflation will stabilize around its 2% target. Currently, core inflation is running at 2.1%, down from 3.2% earlier this year—a meaningful drop. This rate cut aims to support employment growth, keeping borrowing costs attractive.”
Lower rates often boost consumer spending and corporate investment, with direct effects on both equity and bond markets. This move sets the stage for our next portfolio adjustments, especially in relation to borrowing-sensitive sectors and fixed-income assets.
Trump’s Return and Potential Policy Shifts
Next, we looked at the election outcome. “Trump’s victory, flipping states like Pennsylvania, Georgia, and Wisconsin, positions his administration to pursue aggressive economic reforms. We could see tax cuts that lower corporate tax rates back to around 21%, down from the current 25%.” I noted that Trump’s past economic policies created an average GDP growth of 2.8% per year, suggesting a potential economic stimulus that could benefit industrial and domestic sectors.
“However,” I added, “increased domestic policies may also lead to renegotiated trade deals or tariffs. This can impact supply chains, particularly for companies heavily reliant on international trade.”
Sector Implications: What’s Likely to Rise and Fall
With the recent Fed rate cut and Trump’s return to office, each of the 11 major sectors faces unique pressures and opportunities. Here’s a quick breakdown of what we anticipate will shift up or down:
- Technology – Likely to Rise
Lower borrowing costs mean tech companies can finance growth projects more affordably, potentially boosting earnings. Trump’s pro-business stance could also favor tech innovation. Expect gains of around 10-15% in leading companies, especially those focused on AI, cloud, and cybersecurity. - Healthcare – Likely to Rise
With anticipated tax cuts and potential boosts to domestic policy, healthcare companies—especially those focused on biotech and pharmaceuticals—are positioned for growth. We could see gains of 8-12% as investments in R&D become more attractive under lower rates. - Industrials – Likely to Rise
Industrial firms benefit from increased infrastructure spending, and Trump’s push for U.S.-based manufacturing could further drive growth in this sector. Anticipate gains in the 7-10% range, particularly in transportation, construction, and equipment manufacturing. - Energy – Likely to Rise
Domestic production policies are likely to increase demand for U.S.-based energy production, potentially lifting oil and gas prices. Energy companies, especially in the shale and renewable sectors, could see gains of 5-8% as a result. - Financials – Mixed
While rate cuts typically lower profit margins on loans, Trump’s pro-business policies could boost lending activity. We anticipate a balanced outlook here, with traditional banks facing margin pressures, but investment banks and asset managers potentially seeing growth in the 3-5% range. - Consumer Discretionary – Likely to Rise
Lower interest rates often lead to increased consumer spending, especially on discretionary items. Companies in e-commerce, travel, and luxury goods could see gains of 6-9%. However, any future inflationary pressures could dampen long-term gains. - Consumer Staples – Likely Stable
Staples are typically less affected by rate cuts and political changes. However, with a potentially stronger economy and improved consumer sentiment, we expect steady performance here, with slight gains around 2-3%. - Utilities – Likely to Decline
As interest rates drop, high-dividend sectors like utilities often become less attractive relative to growth-oriented investments. We might see declines in the 2-4% range as investors shift to sectors offering greater upside. - Real Estate – Likely to Rise
Lower rates support real estate growth, and with Trump’s policies likely emphasizing U.S. economic development, REITs focused on industrial and commercial properties stand to benefit. Anticipate gains of 5-7% as borrowing costs decrease and demand for commercial space grows. - Communication Services – Mixed
While lower rates favor growth, this sector’s performance will depend heavily on content and ad revenue trends. Large telecom and media companies could see moderate gains (3-5%), while social media platforms may face increased scrutiny over regulatory policies. - Materials – Likely to Rise
Materials will benefit from domestic manufacturing and infrastructure investment. Demand for raw materials could increase, driving potential gains of 6-8% in the sector, especially among companies focused on construction materials, chemicals, and metals.
Asset Classes to watch for
Then, we discussed how these factors are shaping financial markets.
- Equity Markets: Equity Markets: Stocks rallied after the Fed’s rate cut, with the S&P 500 up 2.1% and the NASDAQ gaining 2.6%. Given Trump’s likely focus on domestic economic growth, we’ll lean into sectors that stand to benefit most, like tech, healthcare, and industrials. For instance, tech stocks could see 10-15% earnings boosts with cheaper borrowing. Energy, too, could get a lift as domestic production policies roll out, providing upside in the 8-10% range.
- Fixed Income: “Given the Fed’s rate cut,” I explained, “we’ll maintain our focus on corporate bullet bonds tied to FX trading.” These allow us to leverage currency movements while targeting solid returns. By holding a short-to-intermediate duration, we’ll stay agile and ready to pivot if shifts in rates or currency trends present new opportunities.
- Bitcoin and Ethereum: Bitcoin and Ethereum: My client was curious about our crypto exposure, especially given BTC’s recent surge of 18% over the last quarter. “We’ve increased our crypto allocation from 5% to 8%,” I told her, “to capture upside in BTC and ETH as both benefit from a risk-on environment and lower rates.” BTC serves as a hedge against inflation risks, while ETH’s applications in decentralized finance provide resilience in a shifting economic landscape. We plan to ride this bullish wave through to February 2025 as our partial exit targets will be around $135,000 to $140,000 , aligning with projected market conditions.
- Commodities and Gold: Positioning for Stability: Our conversation also covered commodities, with gold currently up 7% year-to-date. “Gold acts as our hedge against both inflation and geopolitical risk,” I explained, “and it’s a solid buffer as we anticipate potential policy shifts.” Additionally, energy commodities like oil may see price increases as U.S. policies prioritize domestic production. Selective exposure here aligns with our portfolio’s defensive goals, with potential gains in the 5-7% range
- Real Assets: With changes in U.S. trade policies likely,” I noted, “we’ll add selective exposure to emerging markets that rely less on U.S. trade, like Southeast Asia.” Diversifying this way helps cushion against potential trade disruptions, especially if tariffs increase on European or Asian imports. We aim to keep international exposure at about 15% of the portfolio to balance risk and growth.
- Collectibles: How the Art Market and Luxury Assets Fit In: Tangible assets like fine art, rare wine, and luxury watches have shown historical resilience. The art market experienced a slower phase in 2023-2024, yet these assets often act as inflation-resistant hedges. With Trump’s business-focused policies, high-net-worth investors may increasingly view rare collectibles as a stable diversification play. Allocating 5-7% of the portfolio here could offer both stability and exclusive growth potential.
- Alternative Investments: Private Equity, Venture Capital, and Real Assets: With Trump’s focus on U.S.-based growth, private equity and infrastructure funds look promising. “Private equity funds focused on manufacturing and logistics could see annual returns of 10-15%,” I explained, especially with anticipated tax reductions. Venture capital targeting tech innovation also aligns with current economic priorities, offering potential returns of 15-20%.
- Cash Reserve: Lastly, we’re slightly increasing liquidity, setting aside 5% of the portfolio in cash. This buffer lets us act quickly if market volatility presents unique opportunities or if shifting policies call for tactical moves.
So, What’s the Move?
After covering each area, I summed it up: “Our strategy is about staying balanced and nimble. By holding specific assets that align with our goals and monitoring the landscape closely, we’ll be ready to adapt as needed.”
She appreciated the tailored approach, leaving with a clearer view of the steps ahead. And that’s exactly what these conversations are about—translating complex events into precise, actionable insights.
