Tim Hoyle, Chief Investment Officer
thoyle@haverfordquality.com

Disruptor in Chief

It has been 21 days since the inauguration and 1 day since the Eagles won Super Bowl LIX, yet it feels like months of news headlines have occurred.  On one hand, as Disruptor in Chief, President Trump has ushered in a period of unprecedented policy uncertainty. On the other hand, his mission is certain and his motives and methods are clear.

The market’s response to Trump’s second term will come down to the balancing act of two primary drivers. There is a risk that the president’s policies of tariffs, tax cuts, and deportations will place upward pressure on interest rates, pushing debt service costs higher and potentially pressuring rates even higher. A vicious cycle.

Opportunities exist in the potential for deregulation, market friendly policies, and tax cuts to drive market and business sentiment higher (aka, animal spirits).  While just as strong a force as interest rates, sentiment is not as easily quantifiable.  However, you know it when you see it, and as of now it’s apparent that markets are optimistic that the positives of Trump’s policies will win the day.

We share this optimism but are fairly certain the Trump roller coaster is going to take us for a memorable ride.  In the past two weeks alone, massive tariffs have been placed on our most valued trading partners only to be paused almost immediately, government agencies have been essentially shuttered in a quest for efficiency and cost savings[1], border encounters have fallen precipitously, the EU is considering reducing tariffs on American made automobiles, and Denmark is open to expanding the U.S. military’s role in Greenland. Meanwhile President Trump has yet to have a conversation with his Chinese counterpart, even as China’s retaliatory tariffs are set to go into effect on February 10^th.

The combination of Washington D.C. fireworks and a stock market that appears expensive by almost any measure means that market volatility could pick up at any time.  In such a scenario we are confident in our portfolio positioning and would likely regard a market pullback as an opportunity to rebalance.  We continue to believe that 2025 will favor the average stock over the capitalization weighted indexes as earnings growth is set to broaden out.  We are also mindful that market sentiment could turn on a dime based on a Presidential tweet.  Life is an adventure full of unexpected returns. We look forward to sharing the adventure and working with you through all the market permutations.

[1] DOGE like initiatives have been undertaken many times before with varying degrees of success.  Two notable examples include the Al Gore’s National Partnership for Reinventing Government and the Truman Committee.