As President-elect Donald Trump’s tariff and fiscal policies have a growing impact on financial markets, investors are at a point where they need to consider portfolio protection strategies. Experts advise preparing for volatility by increasing investments in small and mid-cap stocks, focusing on domestic markets, and managing bond market risks.
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Investment expert John Davi analyzed that the next administration’s trade protectionist policy is likely to cause inflation. In an interview with CNBC’s ‘ETF Edge’, he mentioned that small and mid-cap industrial stocks would be more advantageous than large-cap industrial stocks. In fact, the Russell 2000 Index, which focuses on small and mid-cap stocks, has been strong since Trump’s election, rising 4%. Wall Street is expecting that the domestic industry promotion policy will have a positive effect on small and mid-sized companies as the Republican Party controls both the Senate and the House of Representatives.
Davie emphasized that a domestically focused portfolio strategy is more advantageous than an overseas one. He analyzed that President Trump is likely to take the lead in policy over the next two years, and that the global trade environment could become unstable due to tariff policies. Accordingly, it may be a safe strategy for investors to place a greater weight on the U.S. market than on overseas markets.
The risks of the bond market cannot be overlooked either. The Trump administration’s fiscal spending expansion and tax cut policies are likely to lead to an increase in the US national debt. Accordingly, interest rates are expected to rise, which could lead to a decline in bond prices. Davy advises bond holders to take a cautious approach and emphasizes the need to closely monitor the impact of interest rate hikes. In fact, since Trump’s election, the yield on 10-year US Treasury bonds has risen by 3%, reflecting the changes in the market.
To protect their portfolios, investors should consider a strategy centered on small and mid-cap stocks and increase their exposure to the domestic market considering the uncertainty of the global market. In addition, they should carefully monitor the volatility of the bond market and prepare for the possibility of interest rate increases. As the Trump administration’s economic policies have a significant impact on the financial market, investors should establish a prudent asset allocation strategy and continuously observe market changes.
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