Six months of Trump 2.0: Chaotic policy shifts, resilient markets

Key points:

• The first six months of Trump’s second presidency have been characterized by bold rhetoric, policy ambiguity, and a renewed push for “America First” priorities—from trade and tax to AI and national defense.
• Despite ongoing political pressure on the Federal Reserve, tariff threats, and legislative uncertainty, markets have remained broadly resilient, with equities supported by AI momentum and pro-growth optimism.
• As the focus shifts from announcements to actual policy execution, a new set of Trump trades is emerging—including structural themes like AI infrastructure, defense, resource nationalism, and digital assets, alongside rate cut-sensitive assets and small caps.

In just six months since Donald Trump returned to the White House, markets have experienced a whirlwind of policy headlines, geopolitical recalibrations, and economic crosswinds. Echoing Lenin’s famous words, there are decades where nothing happens, and weeks where decades happen. The first half of 2025 has seen the U.S. government adopt a more self-directed, assertive role on the world stage, rekindling protectionist rhetoric, floating ambitious tax and spending plans, and throwing policy support behind innovation and national security.

Yet, markets have remained largely resilient. Equities have continued climbing, optimism around artificial intelligence has bolstered tech valuations, and volatility has remained subdued despite repeated threats of tariffs, tighter immigration rules, and political pressure on the Federal Reserve.

Looking ahead, markets may need to shift their focus from headline noise to tangible outcomes. Several Trump-era themes now appear poised to move from speculation into execution—potentially reshaping capital flows and investment leadership in the second half of 2025.

Trade tensions: rhetoric high, execution light

Trade was one of Trump’s most frequently mentioned topics in H1, with repeated threats of tariffs, especially targeting China and Mexico. However, so far, the execution has been limited.

• Tariffs have been repeatedly threatened but not enforced. Investors have largely shrugged off the noise, with markets often rallying after key deadlines pass uneventfully.
• Trump’s approach to trade is being interpreted more as a tactical tool than an imminent threat to global commerce.

Looking ahead:

• If tariffs are implemented following the August 1 deadline, cyclical sectors—particularly autos, industrials, and U.S. retailers—could face margin pressure.
• Conversely, another delay could restore risk appetite, especially for Asia-based exporters and global supply chain beneficiaries like India and Southeast Asia.

Fed independence: pressure builds, markets stay calm

Trump’s persistent criticism of the Federal Reserve and calls for rate cuts have put the Fed’s independence under increasing scrutiny. Despite this, Chair Jerome Powell has so far resisted political pressure.

• Trump’s public criticism has escalated, including suggestions of removing Powell and risks of a shadow Fed chair.
• Although inflation has moderated, the Fed has maintained a steady policy stance—citing data dependence and caution around tariff-induced price volatility.
• Markets, however, are already pricing in rate cuts, supporting risk sentiment.

Looking ahead:

• Powell’s Jackson Hole speech in August and the September FOMC meeting will be key indicators of policy direction.
• If cuts materialize, they may reinforce the notion of a "Trump Put”—suggesting policy will accommodate market weakness.
• If the Fed resists, volatility could reemerge, particularly across rate-sensitive assets.

The “Big Beautiful Tax Bill”: promise or pipe dream?

In typical Trump fashion, the “Big Beautiful Tax Bill” was announced with fanfare, promising tax relief and a pro-growth boost to the economy. But so far, the plan remains more vision than law.

• The proposal includes corporate tax cuts, capital gains relief, and incentives for small businesses.
• Markets initially cheered the announcement, viewing it as a revival of 2017-style fiscal stimulus.
• However, concerns about funding, timing, and political gridlock have begun to surface.

Looking ahead:

• The market appears to expect some version of the tax bill to pass, even if scaled down.
• A legislative impasse could spark policy disappointment and reverse optimism in tax-sensitive equities.
• Conversely, even partial passage could extend the rally in small- and mid-cap stocks and stimulate business investment.

The new Trump trades: investment themes to watch from here

As the policy headlines begin to transition into implementation, investors are starting to reposition toward themes that may have more staying power through Trump’s second term.

Artificial intelligence and infrastructure

Trump has announced a $500 billion public-private AI infrastructure initiative, with participation from major firms including Softbank, OpenAI, and Oracle. Additionally, the GOP’s tax bill proposes:

• $250 million in funding for AI-driven cybersecurity programs,
• Tax breaks for chipmakers building fabrication facilities in the U.S.

Corporate spending remains strong, despite short-term earnings volatility:

• U.S. AI utilization rates have doubled year-on-year, according to Census Bureau data.
• Companies like Microsoft and Meta are ramping up AI development, adjusting internal structures to prioritize generative AI.
• Global investment competition is intensifying. China continues to pursue Nvidia chips, while Meta is expanding its in-house AI labs.

This level of commitment suggests AI is not a fad, but a structural shift that could define the next cycle of corporate capital expenditure.

Defense and security

Trump has signed several executive orders to support military innovation, cybersecurity, and domestic shipbuilding. The GOP spending bill allocates:

• $150 billion for defense overall,
• $29 billion specifically for shipbuilding,
• $170 billion for border enforcement.

Geopolitical instability, from Russia-Ukraine to tensions in the Taiwan Strait, underscores the strategic focus. A $24 billion budget has also been proposed for a space-based missile defense system dubbed the “Golden Dome.”

These commitments make defense one of the more durable Trump trades, likely to benefit from bipartisan support.

Metals and mining

Resource nationalism is becoming a prominent theme under Trump. Executive orders supporting rare earths, copper, and energy exploration aim to reduce dependence on foreign suppliers. Highlights include:

• A Department of Defense investment in MP Materials, making the Pentagon its largest shareholder.
• Proposed tariffs on imported steel, aluminum, and copper, aimed at reviving U.S. production capacity.

These developments signal longer-term support for U.S. mining and energy infrastructure, with implications for commodity prices and industrial equities.

Digital assets and bitcoin

Trump has taken a surprisingly proactive stance on crypto:

• An executive order was signed establishing a U.S. strategic Bitcoin reserve.
• A broader digital finance strategy aims to position the U.S. as a leader in blockchain innovation.
• Key legislative milestones are expected in H2, including a Senate vote on the Stablecoin Bill and the CLARITY Act.

While crypto remains volatile, the regulatory direction under Trump appears to support innovation rather than suppression—potentially unlocking institutional flows.

Small-cap stocks

With more exposure to domestic demand and less sensitivity to global supply chains, small-cap equities are poised to benefit from:

• Proposed tax cuts,
• Looser regulatory conditions,
• Fiscal spending programs targeting infrastructure and innovation.

These factors could unlock outperformance, particularly if the “Big Beautiful Tax Bill” advances in Congress.

Banking sector

The combination of rate cuts and deregulation is creating a constructive backdrop for U.S. banks:

• Lower funding costs may boost profitability,
• Looser regulatory oversight could accelerate M&A activity,
• Underlying credit fundamentals remain relatively stable.

This makes the banking sector attractive to investors looking for mean reversion and income.

Fed rate cut plays

Despite the Fed’s current stance, markets are already discounting potential cuts by year-end. If rate cuts materialize, they would have broad implications:

• Duration-sensitive sectors such as utilities, REITs, and consumer staples stand to benefit as bond yields decline.
• High-dividend equities may regain favor, especially among income-seeking investors reallocating from cash.
• Growth equities, particularly in technology and communication services, may get an additional boost as discount rates fall.
• The falling US dollar could support non-U.S. equities and commodities, reinforcing flows into emerging markets and gold.

China: from manufacturing to innovation

China’s economic trajectory is increasingly defined by a shift from export-led manufacturing to high-tech innovation:

Despite demographic headwinds and trade restrictions, capital continues to flow into AI and semiconductors.

China’s pivot reflects a deeper transformation—from quantity to quality, and from global outsourcing to domestic capability.

U.S. dollar outlook

The combined impact of political interference in Fed policy, rising fiscal deficits, and potential rate cuts could push the dollar lower. A weaker dollar would:

• Make US assets less attractive for foreign investors,
• Enhance the appeal of European and Asian equities,
• Boost earnings for U.S. multinationals,
• Provide tailwinds for gold, oil, and other commodities.

This macro backdrop favors international diversification, selective EM allocation, and commodity exposure in H2.