Trump vs Establishment: Using History as a Guide to Construct Your Portfolio

 Trump vs Establishment: Using History as a Guide to Construct Your Portfolio

• Some Senate Republicans have voiced disapproval of Elon Musk and DOGE’s efforts to trim the fat in Washington

• With more than $100 billion in savings to date, RINO (Republican in Name Only) GOP members have abandoned the Trump MAGA agenda

• Key budget dates are on tap, and the POTUS calls on his party to get tough

“There’s a new standard by which the government is going to function from this point on. The American people are entitled to transparency. They’re entitled to be able to figure out where their dollars are going and they are entitled to accountability to make sure that we’re using the dollars for what we said it was for. That’s our job. We’re not just eliminating fraud and waste. We hope to be instilling an entirely new culture with not only our administration but every succeeding administration.”

AThose are controversial words today. Budget cuts, layoffs across the federal government, and ramped-up efforts to streamline taxpayer-funded initiatives continue to be met with extreme backlash. President Trump, Elon Musk, and the broader Department of Government Efficiency (DOGE) seek to bring common-sense spending back to DC, but they aren’t the first to attempt to tackle bureaucratic waste.

The quote above isn’t from the 47th POTUS or the CEO of Tesla. They are words spoken by then Vice President Joe Biden in 2011 as part of a PR video for former President Obama’s Campaign to Cut Waste. Its mission was to make the federal government work better for the American people. Some 15 years ago, the Accountable Government Initiative aimed to tackle waste and inefficiency in many areas across the government. 

A Failed Attempt

It was the Obama Administration’s form of DOGE, but do you even remember it? Barack and Joe sounded like Donald and Elon in a video pitching the program in June 2011. Of course, they weren’t serious about balancing the budget. It also had little impact on markets–macro investors were more concerned about a double-dip US recession and the European debt crisis during the middle of Obama’s first term. Furthermore, inflation was not a primary issue in the years after 2008-09. Deflationary threats were apparent, causing the Federal Reserve to engage in significant quantitative easing.

A decade later, the Biden Administration would earn the top spot in terms of non-wartime yearly budget deficits as a percent of GDP. The truth is that both sides of the aisle are corrupt and protect their own special interest groups—not the American taxpayer. While cautiously optimistic about DOGE, we can only judge its success or failure once we have seen the outcomes.

US Budget Deficits by President: Worst During Bidenomics (ex-FDR's Depression and WWII Tenure)

Source: BofA Global Research

Is there hope on the horizon? Is DOGE different from past administrations’ failures to cut the fat and spend prudently? There are some signs that things are moving in the right direction. Whereas previous presidents have focused on increasing the federal workforce, Trump seeks to increase private-sector jobs. 

The February employment report—the first full month of Trump 2.0--revealed a solid increase of 10,000 domestic manufacturing workers, double the consensus estimate. The gain came after two years of a broadly declining manufacturing workforce, all while federal government jobs dipped by 10,000. 

Stocks were volatile in the session that followed, with the S&P 500 ranging almost 2%, eventually closing higher for a second consecutive Friday. Perhaps helped by the strong payrolls report, the Energy and Industrials sectors outperformed the S&P 500 that day, but Financials fell. 

US Manufacturing Employment Fell from 2022 to 2024

Source: St. Louis Federal Reserve

Tensions Between Trump and Senate Republicans Over the Budget and Deficit

Today, President Trump finds himself in a battle with members of his party. Trump and DOGE make no qualms about their ambitious agenda to slash the federal budget and rein in the massive budget deficit. Austerity is rarely a popular measure—spending cuts often have traction on the campaign trail, but when jobs are axed, the narrative changes. Still, most Americans seem to side with Trump so far. 

According to a February 2025 CBS News YouGov Poll, 51% of respondents believe there is “a lot” of wasteful spending across federal agencies while just 13% answered “not much/none.” Despite a strong media-induced pushback against DOGE, 54% believe that Musk and DOGE should have at least some influence over government spending and operations. 

The public gets it. In 2024, US growth was as dependent as ever on federal government spending. BofA notes that it accounted for 85% of job creation and 33% of economywide spending. Households may not know the exact numbers and stats, but they see the writing on the wall.

For macro investors, it’s important to recognize how contractionary fiscal policy impacts inflation and sectors. When the government tightens its financial belt, typically through spending cuts, tax hikes, or a combination of both, its mission is to whack inflation to improve long-term fiscal sustainability; softer economic growth can be a negative byproduct. 

Government spending is a GDP input, so when outlays drop, aggregate demand falls. Austerity might weigh most heavily on areas such as defense and infrastructure–two areas vital to the Industrials sector. The Health Care sector could be negatively impacted by reduced federal spending, although Democrats will fight to keep entitlement programs well funded. Consumer Discretionary can also come under pressure if spending cuts are paired with higher taxes. The good news there is that President Trump will, in our view, look to extend today’s low tax rates and may even seek tax relief for many Americans once we get through this “transition period,” as he described it.

There are intermarket impacts to be mindful of, too. For instance, contractionary fiscal policy usually coincides with lower Treasury rates. A decline in market yields often benefits Consumer Staples and Utilities as those are seen, at least partly, as bond proxies. Fixed income itself can rally as growth slows.

From an inflation perspective, less fiscal stimulus today would be disinflationary, if not deflationary, particularly after the surge in federal government spending in the past four years (following the economic recovery from the COVID-induced recession). 

President Trump and DOGE must go about cuts with caution, however, as mature economies can quickly see growth stall, increasing recession risks. Trump surely sees the successes in Argentina from President Milei’s clampdown on the size of its government; the emerging-market nation had been suffering from hyperinflation in advance of the pro-market politician’s 2023 win.

CBS News Poll: Federal Government Waste is a Problem

Source: CBS News

In February, the US Budget Deficit Alone Was Greater than Tax Revenue

Source: Zerohedge

Turning back to the homeland, there’s clearly a decent DOGE backing among a sizable chunk of the electorate. While it makes sense for the left to cast ire at federal spending cuts, some Senate Republicans have come out lukewarm about the Trump fiscal agenda. RINOs, including Senators Cassidy from Louisiana, McConnell from Kentucky, Collins from Maine, Murkowski from Alaska, and Tillis from North Carolina, balk at the pace of DOGE’s efforts, complicating the path forward on bringing the annual budget closer to balance. 

Why might go against the president and the MAGA movement? It likely stems from personal gripes toward Trump and broader economic factors. Many of these senators represent states that receive significant federal funding. Kentucky takes in significant defense dollars, Louisiana routinely relies on disaster relief, and healthcare programs are particularly important to Maine.

Trump Doubles Down on DOGE

During Trump’s Address to a joint session of Congress in March, he offered a litany of wasteful spending projects. The president underscored his goal to balance the budget, even suggesting Americans may have to endure short-term pain. Treasury Secretary Scott Bessent said the same, mentioning that a period of fiscal detox may be required.

It’s so critical that the government gets its fiscal house in order, though. Massive ongoing budget deficits risk fueling permanent inflation, increased borrowing costs, and putting the country on a path toward financial ruin. Unlike career politicians, Donald Trump is taking on the deficit and debt headlong, something the Biden White House was afraid to do. Ray Dalio warns of a financial maelstrom if the annual shortfall doesn’t fall to within 3% of GDP.

The president has said he’s not looking at the stock market right now, so a correction or even a bear market is possible this year, but it’s worth it to get our country back on track for long-term growth. A dynamic macro portfolio could help you pounce on this quickly shifting landscape.

It’s a true tone shift from Trump 1.0 which centered on pro-growth policies and significant spending. The macro backdrop then was considerably different from the challenges facing the economy now.

Eight years ago, inflation was of little concern. The global economy was coming off a flirt with a modest recession, and the manufacturing sector was hit particularly hard. Trump approved $4.8 trillion of new debt (non-COVID spending) during his first four years in office and his signature 2017 Tax Cuts and Jobs Act (TCJA) was a largely popular piece of legislation that acted as a stimulus, prompting stronger growth and all-time lows in unemployment for many groups, including among women and African Americans.

Trump recognizes that 2025’s macroeconomic backdrop of elevated inflation, a broken housing market, and an economy that has slowed significantly in recent quarters is not ideal. Rather than tackling tax policy first (as he did in 2017), bringing the budget back in line is priority one. 2024’s budget deficit, seen just shy of $2 trillion during what was a solid year of GDP growth, is simply unsustainable. 

A fiscal imbalance itself is not always bad—during recessions, some targeted government stimulus can help thwart a protracted economic decline, but that’s a far cry from the 2021-2024 stretch, which was overloaded with government spending far after the worst of the pandemic. Inflation and skyrocketing debt were the results, along with a record-high amount of interest owed on the debt. 

Had Kamala Harris won last November, surely the Biden-era deficits would have persisted, and our nation may not have ever recovered. Controlling spending during periods of economic growth is required to be able to respond effectively in future downturns. The Trump team understands that stabilizing government debt must take precedence now, no matter the political rifts that come with that effort.

DOGE is now tasked with reducing the spending side of the ledger, and Elon Musk’s unofficial department has indeed sparked a contentious fight among the GOP.

Spending Cuts Accumulating

Since its inception via executive order on day one of Trump 2.0, DOGE has worked steadfastly on its mission to streamline federal operations and cut what the president calls “wasteful spending” by up to $1 trillion annually. While Vivek Ramaswamy has left to pursue an Ohio gubernatorial bid, Musk has diverted time away from his many other projects to focus on DOGE. 

He and his team have spearheaded efforts to terminate bloated federal contracts, reduce government agency headcounts, and audit departments for inefficiencies, including mandating that federal employees document their time and tasks via a weekly email. Recently, the Department of Defense and IRS have announced layoffs.

It’s a bold strategy that when paired with a potential trade war, could result in a modest US recession. Economic fears and old-fashioned politics have sparked a GOP outcry among some Republican senators. Trump touts balancing the budget without raising taxes as a popular and winning tactic, but it has proved to be a messy process. 

With estimated savings of $105 billion through March 8, DOGE paces to almost reach its trillion-dollar annual cost-cutting goal, but it remains a small figure compared to the federal deficit. The aforementioned Senate Republicans have voiced opposition to perceived reckless cuts and even overreach, and RINOs point to a lack of DOGE transparency and Musk’s potential conflicts of interest given his vast business empire’s ties to government contracts.

Politicians Standing Against MAGA

This is when alarm bells should be ringing for you as a taxpayer. What does it say about our elected officials when serious actions to work on the out-of-control budget are executed? You would expect Democrats to fight Trump on every issue, but the president needs votes among congressional Republicans to push through his agenda. Less than 100 days into Trump’s second term, it’s clear that the swamp is alive and well, and we are about to embark on a showdown.

Trump’s battle hinges on Senate Republicans—a far from united group. The House, led by Speaker Johnson, who received commendation from the POTUS during the address to a joint session of Congress, passed a budget resolution with $2 trillion in spending cuts over the next decade. Trump endorsed it, but Senate Majority Leader John Thune signaled the chamber won’t take up the budget resolution until late March (at the earliest). The president and his team are not pleased with the delay.

Spending Cuts Draw GOP Ire

Giving the most pushback are Senate RINOs. Murkowski and Collins have voiced concerns over the cost of DOGE’s layoffs on the workforce and the long-term impacts of sweeping cuts. Murkowski dubbed a DOGE directive to fire thousands of federal employees “intimidation,” while Collins described the firings as “a big problem.” Others, like Ron Johnson of Wisconsin, support extending the TCJA, but are skeptical of DOGE’s ability to put a significant dent in the deficit without broader reforms to entitlements like Medicare and Social Security—areas that DOGE cannot touch without congressional approval.

Still other GOP members, while supporting DOGE in principle and spirit, are uneasy with the Silicon Valley approach of “most fast and break things.” Rand Paul, a libertarian-leaning fiscal hawk and noted critic of the administration’s policies, pushes for a more structured approach to avoid further chaos. He asserts that unilateral executive actions may undermine DOGE’s effectiveness. Some House Democrats, like Chip Roy, agree.

Lessons From President Reagan’s First Term

Battles between the executive branch and Congress are nothing new; a similar plot unfolded in the early 1980s. The United States didn’t face soaring interest costs and an astronomical debt to GDP in the early years of the Reagan administration. Instead, back then, stagflation (extremely high inflation and elevated unemployment) was the primary macro condition. 

Fiscal reform was required, and it took well into the president’s second year in office to pass the Economic Recovery Tax Act (ERTA). It was a sweeping tax cut designed to spark economic growth by slashing tax rates, including dropping the top marginal income tax rate from 70% to 50%. You might know the Act better as “Reaganomics,” a lauded economic term while Bidenomics is a clear pejorative.

Reagan supporters rightly argued that tax cuts would stimulate GDP by increasing private-sector investment and job creation. Conversely, Reagan’s detractors feared that lower corporate and personal income tax rates wouldn’t benefit the country and would only result in more debt and higher inflation. While net borrowing ticked up, “morning in America” unfolded to a much larger degree, laying the groundwork for a nearly two-decade economic boom. For investors, 1982 also marked a generational opportunity to buy stocks and bonds.

ERTA was integral to the US reasserting itself on the global stage, but it took nearly 19 months into Reagan’s first term to get it inked into law. While Democrats controlled the House, it was also the era of true “conservative” members of the blue party, and Congressmen like Phil Gramm of Texas helped champion Reaganomics’ birth. 

Today, Washington is far more polarized. Geopolitics are also different–Reagan battled the Soviet Union, a declining world power, while Trump takes on China, a country wielding significant economic, military, and technological influence.

The national debt is the biggest macro issue separating the current political fracture from the one 40-plus years ago. Reagan could slash taxes at the short-term cost of higher borrowing because the fiscal imbalance was relatively in check. 2024’s budget deficit of nearly $2 trillion and a 123% debt-to-GDP ratio raises the stakes as Trump’s second term begins. Like Reagan’s situation, the prospect of lower interest rates amid a free-market renaissance is what Trump aims to deliver to working Americans.

If history is a guide, we will probably see continued market volatility as the Trump administration brokers deals internally and abroad. But just as 1982’s pullback and bear-market bottom gave way to a long bull run, a well-executed spending overhaul today could set the stage for fundamentally-sound growth and higher stock prices–provided policymakers get on board with the MAGA train.

A Looming Government Shutdown?

In the near term, Congress faces a deadline this Friday night to pass government funding legislation before the current Continuing Resolution (CR) expires. Trump, of course, wants to avoid a government shutdown (which history shows is almost always blamed on the GOP). 

A shutdown would be particularly disappointing and potentially embarrassing for the president since Republicans control both chambers of Congress and the White House. Earlier this month, Trump met with conservative hard-liners in the Freedom Caucus to win their backing for a new CR through September. 

Betting Market Assigns at 50% Probability of a 2025 Government Shutdown

Source: Polymarket

Political Uncertainty Seeps into Investors’ Psyche

Source: Bloomberg

In the Senate, 60 votes are needed to pass legislation, and the hope is that some Democrats would support the temporary measure in lieu of taking responsibility for a shutdown. GOP lawmakers now face a tough choice: endorse Trump’s tax cuts and risk inflating the deficit, or demand deeper spending austerity that could alienate their constituents. 

Recall that many of the Biden-era pork spending and inflation-producing acts positively impacted red states, many home to ample renewable energy projects. So, at least a handful of Senate Republicans are pressured by their constituents 

Inflation Reduction Act Benefited RustBelt and SunBelt States

Source: BofA Global Research

DC Drama: “Power Grabs” and “Nuking the Filibuster”

The backlash could grow if broader cuts to Medicaid are bantered about—congressional Democrats made that a point during Trump’s address in early March. The House budget resolution’s focus on cuts to discretionary spending (while sparing mandatory programs) has been described as a “power grab” by Chuck Schumer. 

The former Senate Majority Leader is staunchly opposed to discretionary spending cuts and DOGE being granted what he views as unprecedented access to the Treasury Department’s most sensitive information. On the right, GOP leaders have mulled over major budget changes to obscure the deficit impact of extending the TCJA, a move the left calls “nuking the filibuster.” 

With such heated tension on Capitol Hill, Trump has stepped up his rhetoric, publicly calling out weak Republicans who aren’t fully on board with his mandate. During his record-long address to Congress, the president praised Musk and DOGE. He also urged lawmakers to get tough on the budget, warning that failure to act would result in an economic catastrophe. 

As the most powerful leader in the free world and the undisputed king of the GOP hill, Trump leans on his influence over his party to execute his agenda. RINOs must now decide if they will offer Trump what he demands most—loyalty—or succumb to other political pressures. While very early in Trump’s second term, a critical crossroads is already upon us.

Musk Meets with the Trump Cabinet

Republican infighting might not be out in the open, but it was reported that after Musk met with Senate Republicans in early March to downplay DOGE’s role in controversial federal government firings, there was some mutiny. 

Secretary of State Marco Rubio and Transportation Secretary Sean Duffy reportedly criticized Musk over his “hacksaw” approach to cutting government waste and personnel. Rubio accused Musk of misrepresenting staff reductions, while Duffy raised concerns about the impact of cuts on air traffic controllers. Trump had to step in to defend Rubio and called for a more refined approach, though still deferring to Musk and his team as a key advisor. Later, on a Truth Social post, the president confirmed that Elon and Marco are in good standing with each other.

Trump Takes to Truth Social

Source: Truth Social

Improving Vibes, Hope for Better Budgets

Make no mistake, Americans support reining in out-of-control federal government spending. Along with the CBS poll cited earlier, the Real Clear Politics “Direction of Country” average of polls shows nearly the most optimism (or least net pessimism) in 16 years. 

It’s hard to get a majority on board with anything politically related these days. Despite the media’s vitriolic bent against Trump and DOGE, there remains a desire to shrink the federal government and allow the private sector to flourish.

Direction of Country Poll of Polls: Nearly the Best Since June 2009

Source: Real Clear Politics

The Bottom Line

Some Senate Republicans are outspoken against DOGE and President Trump’s plan to eliminate wasteful government spending. Former President Obama put up a catchy campaign 15 years ago, headed by Joe Biden, to trim the proverbial DC fat. The initiative was a gimmick, and the 44th POTUS is poised to go down as the most reckless fiscal leader in the country’s history.

Ahead of a government shutdown date and amid GOP infighting, it’s clear that members of both parties continue to work against the will of the people. It’s incumbent upon us as voters and investors to always remember that lawmakers work in their interests, not ours.

At Allio, we welcome a new era of fiscal prudence. There could be pain in the short run, but the bloated federal government needs medicine. Trump and DOGE have the potential to set the country on a stable financial future, and macro investors should be ready to allocate accordingly.