Donald Trump’s return to the White House was never going to be a subtle affair. The threat of fresh trade tariffs and heightened geopolitical tension were largely a given. And so, it has come to pass. Trump is disrupting the global political and economic order. The US president was and remains, predictably unpredictable.
But that only tells part of the US story. For ETF investors, a key takeaway is that the US macroeconomic backdrop remains solid. The world’s largest economy is growing, US consumers continue to benefit from a healthy jobs market, growing real wages, and a substantial wealth effect.
Markets are doing well too. Nothing that the new US president has said or done has caused a bad reaction in financial markets. Quite the contrary, despite the uncertainty, equities are up, and so are bonds.
Strong start
For equity ETF investors, the US has already delivered solid gains; the S&P 500 index has already notched a fresh high, and is up 2.4%, year to -date. Notably between Joe Biden’s inauguration in 2021 and Trump’s in January, the blue-chip index achieved a total return of 63.3% (13% annualised). Trump, no doubt, will be determined to beat that.
Despite late January’s technology market wobble, after a new Chinese AI model, DeepSeek, cast doubts over US dominance of the sector, AI remains a secular growth story which will support the global economy and provide a wide range of potential investment opportunities – and US innovation will remain vital here.
Fundamentally, Trump’s support for artificial intelligence, technology more generally, for the oil and gas sector and for deregulation in finance are the centre of hope for continued stock market performance.
Also read: Unlocking Opportunities in Global High Yield Bonds in 2025
The fourth quarter earnings season was very encouraging with results beating expectations overall and future growth potential looking strong.
More potential for fixed income gains
Bond market moves are driven by growth, inflation, policy, and geopolitical events. And recent events have hit bond markets as yields have risen on the back of the Federal Reserve’s interest rate easing, with 100 basis points in cuts since September.
Higher yields, in my view, create better opportunities to invest in bonds. US Treasuries have always had a role as a core allocation thanks to their stability, liquidity and a diversifier and currently ETF investors should also potentially benefit from long-term yields of between 4% and 5%.
US Treasury yields are also reflective of where the economy is, and that the decade of low interest rates is well behind us. The good news is this potentially bodes well for higher returns for bond investors especially as, broadly, income return in bonds is stable.
This raises the probability of potentially decent returns for ETF investors across the asset class in 2025. For US high yield, income return has been close to 7% while the continued decline in the US high yield bond default rate to a three-year low of 1.5% by 2024 year-end (0.36% excluding distressed exchanges), has exemplified the strong fundamental and technical backdrop of this asset class.
For all the market commentary around bond markets, liquidity is good, demand is strong and losing money through default is still a very rare event.
The Trump card
Of course, past performance is no guarantee of future returns, and certainly a Trump administration brings a lot of uncertainty. Alliances are under threat because of his pursuit of an America first agenda. The US pulling out of international agreements, which is threatening its relationship with the rest of the world and disrupting the global trading system. This all could have profound investment implications down the line. However, for ETF investors markets – tech sector lurch aside – have been relatively calm while the outlook for company earnings, markets – and potential investment returns – remain bright. Ultimately, despite the current uncertainties, it remains hard to bet against the US.
