Preparing for possible return of Trump to the White House

At the 2019 work Christmas party, my Secret Santa gave me a Trump desktop calendar with a daily “Trumpism” that you can tear off each morning. Sort of like a bunch of fortune cookies written by a pair of angry twins who often disagree violently with each other. But without the cookies.

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I still have the calendar on my desk at home: the day in front of me is Monday, March 23, 2020. It was the last day I was in the office before the first Covid lockdown when Boris told us to go home. When I finally returned to the office, I saw the calendar on my desk. It felt slightly dystopian – it also somehow seemed fitting to leave it on that day forever as a reminder of how unpredictable the world is.

The quote for that day was taken from a Trump speech at a Republican primary debate on February 25, 2016. When referring to negotiating peace in the Middle East, he said: “It doesn’t do any good to start demeaning the neighbours, because I would love to do something with regard to negotiating peace, finally, for Israel – and for their neighbours. I cannot do that [be a negotiator] as well if I’m taking big, big sides. With that being said, I am totally pro-Israel.”

There were many such pronouncements. During his first term, I used to dread his Sunday night tweets. Some random ill-thought-through rhetoric that would cause chaos in the markets for the start of the week.

While I believe in free speech, I think his (fleeting) ban from Twitter was good for my stress levels.

When Joe Biden won the last election (and I make no political point here), I was hoping for fewer chaotic headlines and a more considered approach to policy announcements. Crikey, we got that, but also a touch of the absurd in a president’s aids keeping him from view like a parody of Weekend At Bernie’s. Speaking purely selfishly, that was OK with me.

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So, four years of relative quiet, but now he’s back, it’s back – the Trump risk. This means waking up to big swings in asset prices because of something he wrote or said, which may or may not be followed through.

Recently, there’s refusing to support Taiwan and telling the US Federal Reserve not to cut interest rates before the election. Here we go again.

Taiwan Semiconductor Manufacturing Company (which we own) was down 8% in one day, and there was a massive move out of the tech-heavy Nasdaq index and into the more diversified Dow Jones. Like him or not, Trump moves markets and creates volatility – even when he’s not yet in the White House.

Our job is to deal with the financial impacts of a change in policies, not the philosophical or political impacts. We’ve anticipated (although not necessarily predicted) a Trump win for some time, so we’ve made subtle changes to our portfolios, such as buying a European defence company, Thales, to account for that eventuality. It seems likely that regardless of who takes the White House, defence spending is heading upwards all around the world.

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If Trump does return to the White House, the key will be to react to what Trump does, not what he says. And what he says can often be word salad that is too dangerous to attempt deciphering (take the Trumpism above as an example). The volatility he creates via his news conferences and social media proclivities often creates short-term mispricing of risk which we can take advantage of. It’s a circus, of course, which I have a sneaking suspicion he enjoys.

However, most of the policies in his first term had a logic to them that we could follow. The Covid bleach incident was a notable exception.

David Coombs is head of multi-asset investments at Rathbones