Shock and Awe

PUBLISHED FEBRUARY 2025

It started off with The Village People singing and dancing their hit “YMCA” in a pre-inaugural rally with President Trump doing his iconic dance along with them. On January 20, Day One, Trump implemented a slew of executive orders that can only be seen as “shock and awe.” 

Then immigration raids began on Day Two, with the deportation of criminals and gang members. Daily headlines will lead our attention back and forth like we’re tracking a tennis match, but the most important trends for investors to monitor are interest-rate yields, the strength of the U.S. dollar, a potential ceasefire between Russia and Ukraine, and that “one big, beautiful tax and spending bill” that Congress may pass—or perhaps two bills, if some members of Congress balk at one.

The biggest Trump wildcard is tariffs. Steep tariffs on Mexico and Canada were set to go into effect on February 1, given President Trump’s trade-policy warnings to America’s neighbors unless they address illegal migration, drug trafficking, and “massive subsidies in the form of deficits.” Promise kept! President Trump likes to use tariffs to make our allies uncomfortable so he can negotiate from strength.

The chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing, and prospering in the world. As Trump began his second term, legendary investor Stanley Druckenmiller told CNBC: “I have been investing in America for 49 years, and we are probably going from the most anti-business administration to the opposite. We do a lot of talking to CEOs and companies on the ground, and I would say CEOs are extremely relieved. This optimism is reflected in the market’s rise since November, and especially after the inauguration.” 

In the first month after the election, the S&P 500 rose 6.6 percent, from 5,712 to 6,090, but then the bond vigilantes and a lame-duck spending spree by the Biden administration sent the index back down to 5,827 on January 10. Since then, the euphoria of the new Sheriff in Town has sent the S&P 500 to new heights.

One big advantage is that we now know that Trump’s 2017 tax bill will be renewed, and his deregulatory philosophy will erase some of the major reversals the Biden team placed on the backs of small businesses. Trump 2.0 also plans to erect major roadblocks against Chinese companies stealing U.S. intellectual property rights “such as patents, copyrights, and trademarks,” to “ensure reciprocal and balanced treatment.” He will also seek ways to check China’s advantages in trying to corner markets in strategic minerals—many mined in Latin America and Africa—thereby squeezing U.S. manufacturers.

Keeping taxes lower, especially on U.S. businesses, is one major reason why CEOs are “between relieved and giddy” now since they need to plan capital expenditures with a knowable future for costs, including the major “burn rate” drained each year by Uncle Sam. A new study by the National Association of Manufacturers calculates that if Congress failed to extend the 2017 Tax Act beyond 2025, the damage to the economy would be 5.9 million lost jobs (1.1 million of those in manufacturing), $540 billion in lost wages ($126 billion in manufacturing) and $1.1 trillion in lost GDP (with manufacturing taking a $284 billion hit). Without Congress extending the tax cuts, the average household would be tagged with $3,000 more in taxes.

The critics of these tax cuts always use populist phrases like “tax cuts for the rich,” when the facts show that the rich pay far more of the percentage of the tax burden than ever before—and so do corporations. Tax computations are not static in nature. Human beings and corporations act according to incentives. If you punish them for working more, they tend to work less, generating less tax revenue, and vice versa. If you reward companies for coming back onshore with their profits, their tax revenues start to pour into D.C.

The S&P gained 23.3 percent last year. The first “honeymoon” year of the last three presidents also gained an average of 23 percent, so it would appear we are in for another solid year of gains, particularly since the president seems more “unbound” than he was during his rookie term.