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5 Themes to Watch as the Trump Era Begins

5 Themes to Watch as the Trump Era Begins

The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

President Donald Trump’s inauguration on January 20th heralded the start of a new and highly unpredictable era in Washington.

Trump and the Republican majority in Congress have big plans for sweeping policy changes in a variety of areas, from health care and immigration to taxes and trade. But investors face considerable uncertainty in trying to determine which policy proposals have a chance of becoming law and when any changes might happen.

It’s far too early to speculate about the details of specific policies and how they might affect the markets. But we think investors should keep five broad themes in mind as the Trump administration settles in over the next few weeks.

  1. Trying to predict what the new administration will do is a fool’s game right now. The first several weeks of any new administration are a whirlwind. Getting cabinet nominees confirmed, hiring hundreds of staffers and addressing myriad organizational decisions large and small can be overwhelming. Trump’s unconventional style and penchant for moving from topic to topic are likely to give the impression of a White House still finding its footing in the coming weeks. As one analyst recently said: “Right now, reading this president is like sculpting fog.” But, as with previous administrations, this one will eventually settle into its own groove. In the meantime, be wary of pundits who say they know how the administration will unfold.
  2. There is a huge difference between proposing big ideas and turning those ideas into actual laws. Moving from the talking points of a speech to producing detailed legislation is very difficult—the hard choices and compromises are always in the details. Drafting legislation that can attract enough support to pass both the House and Senate, even with Republican majorities in both chambers, will be a time-consuming and complex process. We are already seeing this as Republicans on Capitol Hill struggle to come up with a consensus plan for replacing the Affordable Care Act. Issues such as tax reform and an infrastructure spending plan aren’t likely to prove any easier. Legislation could take months to come together, and the finished product is likely to look very different at the end of the process than it did at the beginning. Investors shouldn’t over-react to the early steps in a long process. Speculating on the final shape of legislation could lead to disappointment. The experts at Schwab’s Center for Financial Research suggest this is a time to maintain your discipline, check your asset allocation and don’t go chasing down the latest rumor.
  3. President Trump may underestimate just how hard it is to “change” Washington. Trump was elected as an “outsider” who could take on the Washington bureaucracy. But getting things done in Washington usually means playing the game by Washington’s rules—and at Washington’s pace. Congress has its own timetable and its own processes. Trump and his advisors may be frustrated by how hard it is to get things done. How the president and his team react to the inevitable setbacks and delays will be revealing.
  4. An interesting battle is looming over how policy proposals could impact the federal deficit. Many of President Trump’s priorities are likely to increase the deficit, at least in the short term. But there are dozens of conservative Republicans in the House of Representatives who have for years consistently opposed any legislation that increases the federal deficit. Their new president is someone whose real-estate background has made him comfortable with using debt and deficits as part of a business-management strategy. Some Republicans may be forced into a difficult choice between supporting a president from their own party and sticking to their deficit-reducing principles. It’s a dynamic worth watching as the president seeks to build a working relationship with Capitol Hill Republicans.
  5. This president has an unprecedented ability to impact the markets with his comments and tweets. Even before he was president, we saw evidence of how Trump’s comments, particularly via Twitter, could affect the stock prices of companies, sectors and the market as a whole. Trump doesn’t seem inclined to alter his free-wheeling style now that he is president, so expect the tweets—and the market reactions—to continue.

Presidential tweets will be just one of many distractions likely to come up in the weeks ahead, but we think investors are better off waiting to see how Congress develops legislative proposals on some of the new administration’s big priorities before drawing any conclusions about the longer-term impact of policy changes on the markets. 

What you can do next

  • If you’ve built a solid financial plan and a well-diversified portfolio, it’s best to ignore the political noise and focus on your long-term goals. Want to talk about your portfolio? Call our investment professionals at 800-355-2162.
  • Watch Schwab experts discuss other market and economic topics in the Schwab Market Snapshot.
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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market or economic conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, business, and other conditions.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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