Updated April 2, 2025
Unleashing Animal Spirits: The Promise of a New Regime and America's Economic Renaissance
Unleashing Animal Spirits: The Promise of a New Regime and America's Economic Renaissance
Unleashing Animal Spirits: The Promise of a New Regime and America's Economic Renaissance
AJ Giannone, CFA
The Macroscope
Unleashing Animal Spirits: The Promise of a New Regime and America's Economic Renaissance
Weathering short-term market volatility can be challenging, and it’s essential to be reminded of free-market principles
Economic literacy and keeping a long view help sustain investors through challenging periods
Allio’s dynamic macro process is designed for such a time as this, and we outline why better days may be closer than you think
Markets have been rattled now and then since President Trump was sworn into office for a second time. The media’s focus has been on near-term noise, asserting that “uncertainty” may cascade into a US recession. Such short-sightedness is harmful to all investors, however.
We often see volatility kick up during the first months of a new administration as a honeymoon period of sorts transitions into a more sobering reality that getting effective new policies through Congress is no easy task. It’s also damaging to only focus on the negative short-run impacts of sweeping changes to trade policy when the end game—months or quarters down the line—could be a more favorable global macro construct than before.
At Allio, our team is intentional about seeing beyond the latest Trump Truth Social posts, Oval Office updates, and the media’s spin on them. After all, the stock market discounts the news and often leads the economy by at least six months. We believe that a rebirth of private-sector-led economic prosperity is in the offing—but there may be a bit of pain before that, as President Trump asserted in March. The president then reiterated that tariffs may slow the economy later in the month after the March FOMC meeting and its decision to leave interest rates unchanged.
As the mainstream media paints it all as chaos, the truth is that breaking from the Bush-Obama-Biden policies cannot be done overnight or by executive order. It takes time and strategy to transform a government-stimulated economy into one built on a solid foundation and America’s entrepreneurial spirit, but we believe that the foundations are being laid for a potential new version of “morning in America”.
Trade Policy Uncertainty Soars, A Potential 2025 Buying Opportunity
Source: St. Louis Federal Reserve
A Break from the Past: The Dawn of a New Economic Regime
Today’s macroeconomic environment is in flux, but it shows few signs of teetering on the edge of a deep recession. The backdrop includes retail sales reports that have been decent after a Q4 spending binge, companies that have been scurrying to purchase inventory ahead of tariffs, a soft housing market (but with falling mortgage rates), and government job cuts that appear to be kicking in. Breaking from the past will require the upending of several key areas of the economy that depended on high and rising federal funding and an ever-expanding government bureaucracy.
President Trump outlined some of those plans during his address to a joint session of Congress earlier this year. He hinted at the complexity of his strategies and asked the American people for patience for his initiatives to take root. Trump and Treasury Secretary Bessent have tasked themselves with steering the world’s biggest economy back on the proper heading, but make no mistake, the administration is focused on bringing down global trade barriers, deregulation, spending cuts, and even the creation of a sovereign wealth fund for the benefit of the American people.
The dawn of a new economic regime already has bright rays poking through the clouds. Just recently, Apple announced its commitment to investing half a trillion dollars in the US over the next four years, its largest-ever spending plan. Beyond Cupertino, the world’s most valuable publicly traded company will have new teams and facilities in Michigan, Texas, California, Arizona, Nevada, Iowa, Oregon, North Carolina, and Washington. Then, following Trump’s address to Congress, Health Care-sector stalwart Johnson & Johnson (JNJ) announced a new US investment of more than $55 billion over the coming four years, with total company US economic impact estimated at above $100 billion per year.
These are positive signals for modern manufacturing jobs, but they are merely small steps in the right direction as it remains to be seen how policy changes will evolve.
For nearly two decades, the US operated under the Bush-Obama-Biden continuum. Trump 1.0 offered a brief look at what an America First agenda could do, but COVID-19 quickly upended that in March 2020. Following Biden's taking office, households dealt with four-decade-high inflation, and while the economy grew, it was thanks to trillions of dollars of federal government spending. Ray Dalio warns that 6-7% annual budget deficits are simply not sustainable, but that has almost become the norm as expansive fiscal and monetary policy since the early 2000s and globalization have taken their toll on the quality of US GDP growth.
Not So Free Trade: The US Has the Lowest Total Trade Barriers
Source: BofA Global Research
The US Had the Largest Primary Budget Deficit in 2023
Source: Apollo Global
The America First Regime
The Trump 2.0 approach represents a sharp departure from the themes of the past. Private-sector dynamism is preferred over public-sector largesse. The shift, while potentially transformative, introduces a new layer of uncertainty for investors accustomed to the previous regime’s predictability and perceived government backstop. Along with uncertainty comes reason for excitement, though. New policies aimed to unleash animal spirits across a wider swath of industries may lead to 3%-plus US real GDP growth once we get beyond this transition phase, but it won’t happen with the snap of a finger.
Investors must build and maintain portfolios that can weather near-term macro volatility and capitalize on what is poised to be a period of American prosperity in the offing. Allocating across stocks, bonds, interest-earning cash, commodities, real estate, gold, or cryptocurrency provides an all-weather approach.
While 2025 may include more volatility across equities, our team is bullish on 2026 and beyond, in which case allocating to riskier corners of the market could be warranted. We are already seeing a broadening out of market participation—year to date, the Magnificent Seven stocks have underperformed, while the S&P 493 are about flat despite the VIX nearly touching 30 within Trump’s first 100 days in office.
True animal spirits have yet to permeate, though. The Russell 2000 Index of small-cap stocks has struggled, but prospects for deregulation and reduced compliance costs should improve smaller firms’ profitability. Moreover, increased domestic investment may benefit cyclical sectors like Energy, Financials, and Industrials. Manufacturing reshoring could be a protracted process, but that, too, is poised to help US-centric industries. It’s also possible that a coordinated North American effort to target China’s trade policies would be a bullish macro factor later in Trump’s second term.
Finally, if Elon Musk and the DOGE team are effective, the country’s long-term financial solvency will be in better shape—fiscal stability is required to bring about a new dawn.
Economic Literacy: Understanding the Long-Term Plan
Too many investors are hung up in bombastic media commentaries on the state of the global economy. We see pessimism at extreme levels across investor sentiment gauges and within consumer surveys. It’s understandable, given how mainstream reporters characterize Trump, Musk, and this new direction. Of course, we have pointed out that many Americans continue to side with the president, but that doesn’t mean further economic-refresher lessons aren’t needed. Trump’s long-term plan is rooted in fundamental free-market truths:
Incentives Drive Innovation
Removing risk and reward from the private sector results in perverse and stymied growth potential. In a free market, businesses gain ground for creating better products, services, and technologies, eventually leading to breakthroughs and improved quality of life for all of society. Burdensome red tape, high taxes, and bloated government programs too often squash the entrepreneurial spirit.
Resources Must Be Allocated Efficiently
DOGE was created to scrape up heaping piles of government waste. We have already seen federal workers accept buyout offers, which is a promising sign as those folks can find better-fitting private-sector employment. As Trump’s term progresses, our hope is that the federal government gets slimmed down, allowing free-market resources to flourish.
Consumer Choice and Competition Lead to Better Products and Services
Trump’s long-term plan centers on American households, not big business or big government. He and Bessent have real-world experience, knowing that the more players are in the game, the better off workers and consumers are. Apple and JNJ’s domestic investments are just the opening acts to what could be a manufacturing renaissance built on choice and competition.
Economic Growth Leads to Wealth Creation (and vice versa)
As we continue through this financial literacy missive, it doesn’t require an MBA to understand an economic “wealth effect.” The theory postulates that when individuals feel wealthier, they spend more, perpetuating macroeconomic growth. Robust real GDP expansion fosters increased wages, upward social mobility, and even higher tax receipts, compared to centrally planned systems.
Flexibility is Key
Part of bringing down global financial barriers and clamping down on China’s unfair trade practices is ensuring that the US economy has more wiggle room should a black swan event or exogenous shock (like COVID-19) strike again. We’ve seen the perils of a “just-in-time" economy; a form of “just-in-case" is needed so that private enterprise can respond quickly to macro upheaval. Flexibility is also fundamental to more modest swings, such as changes in consumer preferences, new innovative technologies, and global trends. Our hope is that deregulation empowers the private sector to make its own decisions concerning supply chains and geographic exposures.
Entrepreneurship Should be Encouraged, Not Crowded Out
Coming into the second Trump administration, there was a notable slowdown in “high-propensity business applications.” That’s a fancy term for small-business formation. The back half of 2024 posted negative year-on-year net application growth, a sign that after trillions of dollars of debt-financed stimulus, the shine was coming off economic growth from a small-business perspective. Trump, Bessent, Commerce Secretary Lutnick, and other members of the administration must divert from the Biden playbook and clear the way for entrepreneurs to get a leg up from their own hard work and innovation.
High-Propensity Business Application Growth YoY Turned Negative in 2024
Source: St. Louis Federal Reserve
The Lower and Middle Classes Need to Win
Before the trillions of dollars in post-COVID spending, real wage growth was nonexistent for most blue-collar workers. Globalization left its ugly mark on communities across the heartland, and only recently have they seen an uptick in inflation-adjusted pay. Of course, low- and middle-income families had to endure a protracted period of negative real-wage growth from 2021 through 2023 first. Long-term US economic prosperity depends on a thriving middle class and opportunities for low-wage earners to move up. Trump is all about the “forgotten man,” so there’s good reason for optimism that this economic truth is at the heart of future policy.
2021-2023 Inflation Wiped Out 2017-2020's Period of Real Wage Growth
Source: Goldman Sachs
Capitalism Encourages International Trade and Economic Cooperation
The media portrays Trump as a protectionist and a media mogul who has grievances with the rest of the world. He indeed has a decades-long history of chastising other countries for taking advantage of the US, but his policies make it clear that he demands fairer global trade. It remains to be seen how a reciprocal tariff policy will unfold, but the end game is for all nations to tear down proverbial walls. If not, the US will collect billions more in tariff revenue, partly paid for by other countries.
Why It’s Right to be Bullish Looking Further Out
Economic literacy is essential for navigating the transitions that come with Trump 2.0. Too many investors focus on daily market swings rather than the macro-investing process. We believe Trump and Bessent have a coherent long-term plan of deregulation to unlock capital, tariffs to protect domestic industries, and fiscal discipline to sustain any growth potential.
We expect markets to perform well looking out 6-12 months and thereafter, particularly as policy changes move toward rosier initiatives like tax cuts, though risks remain. By then, interest rates may be lower (the Fed Funds futures market points to sub-4% short-term borrowing rates by early 2026) and consumers and businesses will have had the chance to adjust to new policies.
From the C-suite's perspective, we assert that investors should not lose sight of the power of American enterprise. Yes, there is a pause in capex plans and a dearth of hiring (which began before Trump returned to the White House), but companies will not sit on their hands for very long. As trade policies are fleshed out and the inklings of lower taxes make their way into the news, we believe a wave of domestic investment likely could follow—and that is when all those animal spirits bantered about on election night will reveal themselves.
2017, if you’ll remember, was among the stock market’s best years from a risk and return point of view—the S&P 500 returned more than 20% while the VIX never sniffed 20—more of that could be closer than you think.
2017: High Returns, Low Volatility
Source: Stockcharts.com
The Bottom Line
Investors must make a concerted effort to avoid fixating on near-term noise—a macro process is required. Successfully navigating global markets is done by zooming out, not panic buying and selling. Such short-termism only results in portfolio whipsaws and increased taxes and transaction costs. Reminding yourself of free-market maxims is helpful to weathering today’s volatility and best positioning your portfolio for what could be the next great bull market.
Investors can position themselves with dynamic macro portfolios using Allio’s personalized technologies and AI-powered tools to try and identify critical market turning points. We offer both managed portfolios and customizable tactical allocation options. From asset classes to geographies and industries, we enable you to think bigger and act decisively.
Unleashing Animal Spirits: The Promise of a New Regime and America's Economic Renaissance
Weathering short-term market volatility can be challenging, and it’s essential to be reminded of free-market principles
Economic literacy and keeping a long view help sustain investors through challenging periods
Allio’s dynamic macro process is designed for such a time as this, and we outline why better days may be closer than you think
Markets have been rattled now and then since President Trump was sworn into office for a second time. The media’s focus has been on near-term noise, asserting that “uncertainty” may cascade into a US recession. Such short-sightedness is harmful to all investors, however.
We often see volatility kick up during the first months of a new administration as a honeymoon period of sorts transitions into a more sobering reality that getting effective new policies through Congress is no easy task. It’s also damaging to only focus on the negative short-run impacts of sweeping changes to trade policy when the end game—months or quarters down the line—could be a more favorable global macro construct than before.
At Allio, our team is intentional about seeing beyond the latest Trump Truth Social posts, Oval Office updates, and the media’s spin on them. After all, the stock market discounts the news and often leads the economy by at least six months. We believe that a rebirth of private-sector-led economic prosperity is in the offing—but there may be a bit of pain before that, as President Trump asserted in March. The president then reiterated that tariffs may slow the economy later in the month after the March FOMC meeting and its decision to leave interest rates unchanged.
As the mainstream media paints it all as chaos, the truth is that breaking from the Bush-Obama-Biden policies cannot be done overnight or by executive order. It takes time and strategy to transform a government-stimulated economy into one built on a solid foundation and America’s entrepreneurial spirit, but we believe that the foundations are being laid for a potential new version of “morning in America”.
Trade Policy Uncertainty Soars, A Potential 2025 Buying Opportunity
Source: St. Louis Federal Reserve
A Break from the Past: The Dawn of a New Economic Regime
Today’s macroeconomic environment is in flux, but it shows few signs of teetering on the edge of a deep recession. The backdrop includes retail sales reports that have been decent after a Q4 spending binge, companies that have been scurrying to purchase inventory ahead of tariffs, a soft housing market (but with falling mortgage rates), and government job cuts that appear to be kicking in. Breaking from the past will require the upending of several key areas of the economy that depended on high and rising federal funding and an ever-expanding government bureaucracy.
President Trump outlined some of those plans during his address to a joint session of Congress earlier this year. He hinted at the complexity of his strategies and asked the American people for patience for his initiatives to take root. Trump and Treasury Secretary Bessent have tasked themselves with steering the world’s biggest economy back on the proper heading, but make no mistake, the administration is focused on bringing down global trade barriers, deregulation, spending cuts, and even the creation of a sovereign wealth fund for the benefit of the American people.
The dawn of a new economic regime already has bright rays poking through the clouds. Just recently, Apple announced its commitment to investing half a trillion dollars in the US over the next four years, its largest-ever spending plan. Beyond Cupertino, the world’s most valuable publicly traded company will have new teams and facilities in Michigan, Texas, California, Arizona, Nevada, Iowa, Oregon, North Carolina, and Washington. Then, following Trump’s address to Congress, Health Care-sector stalwart Johnson & Johnson (JNJ) announced a new US investment of more than $55 billion over the coming four years, with total company US economic impact estimated at above $100 billion per year.
These are positive signals for modern manufacturing jobs, but they are merely small steps in the right direction as it remains to be seen how policy changes will evolve.
For nearly two decades, the US operated under the Bush-Obama-Biden continuum. Trump 1.0 offered a brief look at what an America First agenda could do, but COVID-19 quickly upended that in March 2020. Following Biden's taking office, households dealt with four-decade-high inflation, and while the economy grew, it was thanks to trillions of dollars of federal government spending. Ray Dalio warns that 6-7% annual budget deficits are simply not sustainable, but that has almost become the norm as expansive fiscal and monetary policy since the early 2000s and globalization have taken their toll on the quality of US GDP growth.
Not So Free Trade: The US Has the Lowest Total Trade Barriers
Source: BofA Global Research
The US Had the Largest Primary Budget Deficit in 2023
Source: Apollo Global
The America First Regime
The Trump 2.0 approach represents a sharp departure from the themes of the past. Private-sector dynamism is preferred over public-sector largesse. The shift, while potentially transformative, introduces a new layer of uncertainty for investors accustomed to the previous regime’s predictability and perceived government backstop. Along with uncertainty comes reason for excitement, though. New policies aimed to unleash animal spirits across a wider swath of industries may lead to 3%-plus US real GDP growth once we get beyond this transition phase, but it won’t happen with the snap of a finger.
Investors must build and maintain portfolios that can weather near-term macro volatility and capitalize on what is poised to be a period of American prosperity in the offing. Allocating across stocks, bonds, interest-earning cash, commodities, real estate, gold, or cryptocurrency provides an all-weather approach.
While 2025 may include more volatility across equities, our team is bullish on 2026 and beyond, in which case allocating to riskier corners of the market could be warranted. We are already seeing a broadening out of market participation—year to date, the Magnificent Seven stocks have underperformed, while the S&P 493 are about flat despite the VIX nearly touching 30 within Trump’s first 100 days in office.
True animal spirits have yet to permeate, though. The Russell 2000 Index of small-cap stocks has struggled, but prospects for deregulation and reduced compliance costs should improve smaller firms’ profitability. Moreover, increased domestic investment may benefit cyclical sectors like Energy, Financials, and Industrials. Manufacturing reshoring could be a protracted process, but that, too, is poised to help US-centric industries. It’s also possible that a coordinated North American effort to target China’s trade policies would be a bullish macro factor later in Trump’s second term.
Finally, if Elon Musk and the DOGE team are effective, the country’s long-term financial solvency will be in better shape—fiscal stability is required to bring about a new dawn.
Economic Literacy: Understanding the Long-Term Plan
Too many investors are hung up in bombastic media commentaries on the state of the global economy. We see pessimism at extreme levels across investor sentiment gauges and within consumer surveys. It’s understandable, given how mainstream reporters characterize Trump, Musk, and this new direction. Of course, we have pointed out that many Americans continue to side with the president, but that doesn’t mean further economic-refresher lessons aren’t needed. Trump’s long-term plan is rooted in fundamental free-market truths:
Incentives Drive Innovation
Removing risk and reward from the private sector results in perverse and stymied growth potential. In a free market, businesses gain ground for creating better products, services, and technologies, eventually leading to breakthroughs and improved quality of life for all of society. Burdensome red tape, high taxes, and bloated government programs too often squash the entrepreneurial spirit.
Resources Must Be Allocated Efficiently
DOGE was created to scrape up heaping piles of government waste. We have already seen federal workers accept buyout offers, which is a promising sign as those folks can find better-fitting private-sector employment. As Trump’s term progresses, our hope is that the federal government gets slimmed down, allowing free-market resources to flourish.
Consumer Choice and Competition Lead to Better Products and Services
Trump’s long-term plan centers on American households, not big business or big government. He and Bessent have real-world experience, knowing that the more players are in the game, the better off workers and consumers are. Apple and JNJ’s domestic investments are just the opening acts to what could be a manufacturing renaissance built on choice and competition.
Economic Growth Leads to Wealth Creation (and vice versa)
As we continue through this financial literacy missive, it doesn’t require an MBA to understand an economic “wealth effect.” The theory postulates that when individuals feel wealthier, they spend more, perpetuating macroeconomic growth. Robust real GDP expansion fosters increased wages, upward social mobility, and even higher tax receipts, compared to centrally planned systems.
Flexibility is Key
Part of bringing down global financial barriers and clamping down on China’s unfair trade practices is ensuring that the US economy has more wiggle room should a black swan event or exogenous shock (like COVID-19) strike again. We’ve seen the perils of a “just-in-time" economy; a form of “just-in-case" is needed so that private enterprise can respond quickly to macro upheaval. Flexibility is also fundamental to more modest swings, such as changes in consumer preferences, new innovative technologies, and global trends. Our hope is that deregulation empowers the private sector to make its own decisions concerning supply chains and geographic exposures.
Entrepreneurship Should be Encouraged, Not Crowded Out
Coming into the second Trump administration, there was a notable slowdown in “high-propensity business applications.” That’s a fancy term for small-business formation. The back half of 2024 posted negative year-on-year net application growth, a sign that after trillions of dollars of debt-financed stimulus, the shine was coming off economic growth from a small-business perspective. Trump, Bessent, Commerce Secretary Lutnick, and other members of the administration must divert from the Biden playbook and clear the way for entrepreneurs to get a leg up from their own hard work and innovation.
High-Propensity Business Application Growth YoY Turned Negative in 2024
Source: St. Louis Federal Reserve
The Lower and Middle Classes Need to Win
Before the trillions of dollars in post-COVID spending, real wage growth was nonexistent for most blue-collar workers. Globalization left its ugly mark on communities across the heartland, and only recently have they seen an uptick in inflation-adjusted pay. Of course, low- and middle-income families had to endure a protracted period of negative real-wage growth from 2021 through 2023 first. Long-term US economic prosperity depends on a thriving middle class and opportunities for low-wage earners to move up. Trump is all about the “forgotten man,” so there’s good reason for optimism that this economic truth is at the heart of future policy.
2021-2023 Inflation Wiped Out 2017-2020's Period of Real Wage Growth
Source: Goldman Sachs
Capitalism Encourages International Trade and Economic Cooperation
The media portrays Trump as a protectionist and a media mogul who has grievances with the rest of the world. He indeed has a decades-long history of chastising other countries for taking advantage of the US, but his policies make it clear that he demands fairer global trade. It remains to be seen how a reciprocal tariff policy will unfold, but the end game is for all nations to tear down proverbial walls. If not, the US will collect billions more in tariff revenue, partly paid for by other countries.
Why It’s Right to be Bullish Looking Further Out
Economic literacy is essential for navigating the transitions that come with Trump 2.0. Too many investors focus on daily market swings rather than the macro-investing process. We believe Trump and Bessent have a coherent long-term plan of deregulation to unlock capital, tariffs to protect domestic industries, and fiscal discipline to sustain any growth potential.
We expect markets to perform well looking out 6-12 months and thereafter, particularly as policy changes move toward rosier initiatives like tax cuts, though risks remain. By then, interest rates may be lower (the Fed Funds futures market points to sub-4% short-term borrowing rates by early 2026) and consumers and businesses will have had the chance to adjust to new policies.
From the C-suite's perspective, we assert that investors should not lose sight of the power of American enterprise. Yes, there is a pause in capex plans and a dearth of hiring (which began before Trump returned to the White House), but companies will not sit on their hands for very long. As trade policies are fleshed out and the inklings of lower taxes make their way into the news, we believe a wave of domestic investment likely could follow—and that is when all those animal spirits bantered about on election night will reveal themselves.
2017, if you’ll remember, was among the stock market’s best years from a risk and return point of view—the S&P 500 returned more than 20% while the VIX never sniffed 20—more of that could be closer than you think.
2017: High Returns, Low Volatility
Source: Stockcharts.com
The Bottom Line
Investors must make a concerted effort to avoid fixating on near-term noise—a macro process is required. Successfully navigating global markets is done by zooming out, not panic buying and selling. Such short-termism only results in portfolio whipsaws and increased taxes and transaction costs. Reminding yourself of free-market maxims is helpful to weathering today’s volatility and best positioning your portfolio for what could be the next great bull market.
Investors can position themselves with dynamic macro portfolios using Allio’s personalized technologies and AI-powered tools to try and identify critical market turning points. We offer both managed portfolios and customizable tactical allocation options. From asset classes to geographies and industries, we enable you to think bigger and act decisively.
Unleashing Animal Spirits: The Promise of a New Regime and America's Economic Renaissance
Weathering short-term market volatility can be challenging, and it’s essential to be reminded of free-market principles
Economic literacy and keeping a long view help sustain investors through challenging periods
Allio’s dynamic macro process is designed for such a time as this, and we outline why better days may be closer than you think
Markets have been rattled now and then since President Trump was sworn into office for a second time. The media’s focus has been on near-term noise, asserting that “uncertainty” may cascade into a US recession. Such short-sightedness is harmful to all investors, however.
We often see volatility kick up during the first months of a new administration as a honeymoon period of sorts transitions into a more sobering reality that getting effective new policies through Congress is no easy task. It’s also damaging to only focus on the negative short-run impacts of sweeping changes to trade policy when the end game—months or quarters down the line—could be a more favorable global macro construct than before.
At Allio, our team is intentional about seeing beyond the latest Trump Truth Social posts, Oval Office updates, and the media’s spin on them. After all, the stock market discounts the news and often leads the economy by at least six months. We believe that a rebirth of private-sector-led economic prosperity is in the offing—but there may be a bit of pain before that, as President Trump asserted in March. The president then reiterated that tariffs may slow the economy later in the month after the March FOMC meeting and its decision to leave interest rates unchanged.
As the mainstream media paints it all as chaos, the truth is that breaking from the Bush-Obama-Biden policies cannot be done overnight or by executive order. It takes time and strategy to transform a government-stimulated economy into one built on a solid foundation and America’s entrepreneurial spirit, but we believe that the foundations are being laid for a potential new version of “morning in America”.
Trade Policy Uncertainty Soars, A Potential 2025 Buying Opportunity
Source: St. Louis Federal Reserve
A Break from the Past: The Dawn of a New Economic Regime
Today’s macroeconomic environment is in flux, but it shows few signs of teetering on the edge of a deep recession. The backdrop includes retail sales reports that have been decent after a Q4 spending binge, companies that have been scurrying to purchase inventory ahead of tariffs, a soft housing market (but with falling mortgage rates), and government job cuts that appear to be kicking in. Breaking from the past will require the upending of several key areas of the economy that depended on high and rising federal funding and an ever-expanding government bureaucracy.
President Trump outlined some of those plans during his address to a joint session of Congress earlier this year. He hinted at the complexity of his strategies and asked the American people for patience for his initiatives to take root. Trump and Treasury Secretary Bessent have tasked themselves with steering the world’s biggest economy back on the proper heading, but make no mistake, the administration is focused on bringing down global trade barriers, deregulation, spending cuts, and even the creation of a sovereign wealth fund for the benefit of the American people.
The dawn of a new economic regime already has bright rays poking through the clouds. Just recently, Apple announced its commitment to investing half a trillion dollars in the US over the next four years, its largest-ever spending plan. Beyond Cupertino, the world’s most valuable publicly traded company will have new teams and facilities in Michigan, Texas, California, Arizona, Nevada, Iowa, Oregon, North Carolina, and Washington. Then, following Trump’s address to Congress, Health Care-sector stalwart Johnson & Johnson (JNJ) announced a new US investment of more than $55 billion over the coming four years, with total company US economic impact estimated at above $100 billion per year.
These are positive signals for modern manufacturing jobs, but they are merely small steps in the right direction as it remains to be seen how policy changes will evolve.
For nearly two decades, the US operated under the Bush-Obama-Biden continuum. Trump 1.0 offered a brief look at what an America First agenda could do, but COVID-19 quickly upended that in March 2020. Following Biden's taking office, households dealt with four-decade-high inflation, and while the economy grew, it was thanks to trillions of dollars of federal government spending. Ray Dalio warns that 6-7% annual budget deficits are simply not sustainable, but that has almost become the norm as expansive fiscal and monetary policy since the early 2000s and globalization have taken their toll on the quality of US GDP growth.
Not So Free Trade: The US Has the Lowest Total Trade Barriers
Source: BofA Global Research
The US Had the Largest Primary Budget Deficit in 2023
Source: Apollo Global
The America First Regime
The Trump 2.0 approach represents a sharp departure from the themes of the past. Private-sector dynamism is preferred over public-sector largesse. The shift, while potentially transformative, introduces a new layer of uncertainty for investors accustomed to the previous regime’s predictability and perceived government backstop. Along with uncertainty comes reason for excitement, though. New policies aimed to unleash animal spirits across a wider swath of industries may lead to 3%-plus US real GDP growth once we get beyond this transition phase, but it won’t happen with the snap of a finger.
Investors must build and maintain portfolios that can weather near-term macro volatility and capitalize on what is poised to be a period of American prosperity in the offing. Allocating across stocks, bonds, interest-earning cash, commodities, real estate, gold, or cryptocurrency provides an all-weather approach.
While 2025 may include more volatility across equities, our team is bullish on 2026 and beyond, in which case allocating to riskier corners of the market could be warranted. We are already seeing a broadening out of market participation—year to date, the Magnificent Seven stocks have underperformed, while the S&P 493 are about flat despite the VIX nearly touching 30 within Trump’s first 100 days in office.
True animal spirits have yet to permeate, though. The Russell 2000 Index of small-cap stocks has struggled, but prospects for deregulation and reduced compliance costs should improve smaller firms’ profitability. Moreover, increased domestic investment may benefit cyclical sectors like Energy, Financials, and Industrials. Manufacturing reshoring could be a protracted process, but that, too, is poised to help US-centric industries. It’s also possible that a coordinated North American effort to target China’s trade policies would be a bullish macro factor later in Trump’s second term.
Finally, if Elon Musk and the DOGE team are effective, the country’s long-term financial solvency will be in better shape—fiscal stability is required to bring about a new dawn.
Economic Literacy: Understanding the Long-Term Plan
Too many investors are hung up in bombastic media commentaries on the state of the global economy. We see pessimism at extreme levels across investor sentiment gauges and within consumer surveys. It’s understandable, given how mainstream reporters characterize Trump, Musk, and this new direction. Of course, we have pointed out that many Americans continue to side with the president, but that doesn’t mean further economic-refresher lessons aren’t needed. Trump’s long-term plan is rooted in fundamental free-market truths:
Incentives Drive Innovation
Removing risk and reward from the private sector results in perverse and stymied growth potential. In a free market, businesses gain ground for creating better products, services, and technologies, eventually leading to breakthroughs and improved quality of life for all of society. Burdensome red tape, high taxes, and bloated government programs too often squash the entrepreneurial spirit.
Resources Must Be Allocated Efficiently
DOGE was created to scrape up heaping piles of government waste. We have already seen federal workers accept buyout offers, which is a promising sign as those folks can find better-fitting private-sector employment. As Trump’s term progresses, our hope is that the federal government gets slimmed down, allowing free-market resources to flourish.
Consumer Choice and Competition Lead to Better Products and Services
Trump’s long-term plan centers on American households, not big business or big government. He and Bessent have real-world experience, knowing that the more players are in the game, the better off workers and consumers are. Apple and JNJ’s domestic investments are just the opening acts to what could be a manufacturing renaissance built on choice and competition.
Economic Growth Leads to Wealth Creation (and vice versa)
As we continue through this financial literacy missive, it doesn’t require an MBA to understand an economic “wealth effect.” The theory postulates that when individuals feel wealthier, they spend more, perpetuating macroeconomic growth. Robust real GDP expansion fosters increased wages, upward social mobility, and even higher tax receipts, compared to centrally planned systems.
Flexibility is Key
Part of bringing down global financial barriers and clamping down on China’s unfair trade practices is ensuring that the US economy has more wiggle room should a black swan event or exogenous shock (like COVID-19) strike again. We’ve seen the perils of a “just-in-time" economy; a form of “just-in-case" is needed so that private enterprise can respond quickly to macro upheaval. Flexibility is also fundamental to more modest swings, such as changes in consumer preferences, new innovative technologies, and global trends. Our hope is that deregulation empowers the private sector to make its own decisions concerning supply chains and geographic exposures.
Entrepreneurship Should be Encouraged, Not Crowded Out
Coming into the second Trump administration, there was a notable slowdown in “high-propensity business applications.” That’s a fancy term for small-business formation. The back half of 2024 posted negative year-on-year net application growth, a sign that after trillions of dollars of debt-financed stimulus, the shine was coming off economic growth from a small-business perspective. Trump, Bessent, Commerce Secretary Lutnick, and other members of the administration must divert from the Biden playbook and clear the way for entrepreneurs to get a leg up from their own hard work and innovation.
High-Propensity Business Application Growth YoY Turned Negative in 2024
Source: St. Louis Federal Reserve
The Lower and Middle Classes Need to Win
Before the trillions of dollars in post-COVID spending, real wage growth was nonexistent for most blue-collar workers. Globalization left its ugly mark on communities across the heartland, and only recently have they seen an uptick in inflation-adjusted pay. Of course, low- and middle-income families had to endure a protracted period of negative real-wage growth from 2021 through 2023 first. Long-term US economic prosperity depends on a thriving middle class and opportunities for low-wage earners to move up. Trump is all about the “forgotten man,” so there’s good reason for optimism that this economic truth is at the heart of future policy.
2021-2023 Inflation Wiped Out 2017-2020's Period of Real Wage Growth
Source: Goldman Sachs
Capitalism Encourages International Trade and Economic Cooperation
The media portrays Trump as a protectionist and a media mogul who has grievances with the rest of the world. He indeed has a decades-long history of chastising other countries for taking advantage of the US, but his policies make it clear that he demands fairer global trade. It remains to be seen how a reciprocal tariff policy will unfold, but the end game is for all nations to tear down proverbial walls. If not, the US will collect billions more in tariff revenue, partly paid for by other countries.
Why It’s Right to be Bullish Looking Further Out
Economic literacy is essential for navigating the transitions that come with Trump 2.0. Too many investors focus on daily market swings rather than the macro-investing process. We believe Trump and Bessent have a coherent long-term plan of deregulation to unlock capital, tariffs to protect domestic industries, and fiscal discipline to sustain any growth potential.
We expect markets to perform well looking out 6-12 months and thereafter, particularly as policy changes move toward rosier initiatives like tax cuts, though risks remain. By then, interest rates may be lower (the Fed Funds futures market points to sub-4% short-term borrowing rates by early 2026) and consumers and businesses will have had the chance to adjust to new policies.
From the C-suite's perspective, we assert that investors should not lose sight of the power of American enterprise. Yes, there is a pause in capex plans and a dearth of hiring (which began before Trump returned to the White House), but companies will not sit on their hands for very long. As trade policies are fleshed out and the inklings of lower taxes make their way into the news, we believe a wave of domestic investment likely could follow—and that is when all those animal spirits bantered about on election night will reveal themselves.
2017, if you’ll remember, was among the stock market’s best years from a risk and return point of view—the S&P 500 returned more than 20% while the VIX never sniffed 20—more of that could be closer than you think.
2017: High Returns, Low Volatility
Source: Stockcharts.com
The Bottom Line
Investors must make a concerted effort to avoid fixating on near-term noise—a macro process is required. Successfully navigating global markets is done by zooming out, not panic buying and selling. Such short-termism only results in portfolio whipsaws and increased taxes and transaction costs. Reminding yourself of free-market maxims is helpful to weathering today’s volatility and best positioning your portfolio for what could be the next great bull market.
Investors can position themselves with dynamic macro portfolios using Allio’s personalized technologies and AI-powered tools to try and identify critical market turning points. We offer both managed portfolios and customizable tactical allocation options. From asset classes to geographies and industries, we enable you to think bigger and act decisively.
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Disclosures
This material is for informational purposes only and should not be construed as financial, legal, or tax advice. You should consult your own financial, legal, and tax advisors before engaging in any transaction. Information, including hypothetical projections of finances, may not take into account taxes, commissions, or other factors which may significantly affect potential outcomes. This material should not be considered an offer or recommendation to buy or sell a security. While information and sources are believed to be accurate, Allio Capital does not guarantee the accuracy or completeness of any information or source provided herein and is under no obligation to update this information.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Performance could be volatile; an investment in a fund or an account may lose money.
There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
This advertisement is provided by Allio Capital for informational purposes only and should not be considered investment advice, a recommendation, or a solicitation to buy or sell any securities. Investment decisions should be based on your specific financial situation and objectives, considering the risks and uncertainties associated with investing.
The views and forecasts expressed are those of Allio Capital and are subject to change without notice. Past performance is not indicative of future results, and investing involves risk, including the possible loss of principal. Market volatility, economic conditions, and changes in government policy may impact the accuracy of these forecasts and the performance of any investment.
Allio Capital utilizes proprietary technologies and methodologies, but no investment strategy can guarantee returns or eliminate risk. Investors should carefully consider their investment goals, risk tolerance, and financial circumstances before investing.
For more detailed information about our strategies and associated risks, please refer to the full disclosures available on our website or contact an Allio Capital advisor.
For informational purposes only; not personalized investment advice. All investments involve risk of loss. Past performance of any index or strategy is not indicative of future results. Any projections or forward-looking statements are hypothetical and not guaranteed. Allio is an SEC-registered investment adviser – see our Form ADV for details. No content should be construed as a recommendation to buy or sell any security.
Disclosures
This material is for informational purposes only and should not be construed as financial, legal, or tax advice. You should consult your own financial, legal, and tax advisors before engaging in any transaction. Information, including hypothetical projections of finances, may not take into account taxes, commissions, or other factors which may significantly affect potential outcomes. This material should not be considered an offer or recommendation to buy or sell a security. While information and sources are believed to be accurate, Allio Capital does not guarantee the accuracy or completeness of any information or source provided herein and is under no obligation to update this information.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Performance could be volatile; an investment in a fund or an account may lose money.
There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
This advertisement is provided by Allio Capital for informational purposes only and should not be considered investment advice, a recommendation, or a solicitation to buy or sell any securities. Investment decisions should be based on your specific financial situation and objectives, considering the risks and uncertainties associated with investing.
The views and forecasts expressed are those of Allio Capital and are subject to change without notice. Past performance is not indicative of future results, and investing involves risk, including the possible loss of principal. Market volatility, economic conditions, and changes in government policy may impact the accuracy of these forecasts and the performance of any investment.
Allio Capital utilizes proprietary technologies and methodologies, but no investment strategy can guarantee returns or eliminate risk. Investors should carefully consider their investment goals, risk tolerance, and financial circumstances before investing.
For more detailed information about our strategies and associated risks, please refer to the full disclosures available on our website or contact an Allio Capital advisor.
For informational purposes only; not personalized investment advice. All investments involve risk of loss. Past performance of any index or strategy is not indicative of future results. Any projections or forward-looking statements are hypothetical and not guaranteed. Allio is an SEC-registered investment adviser – see our Form ADV for details. No content should be construed as a recommendation to buy or sell any security.
Disclosures
This material is for informational purposes only and should not be construed as financial, legal, or tax advice. You should consult your own financial, legal, and tax advisors before engaging in any transaction. Information, including hypothetical projections of finances, may not take into account taxes, commissions, or other factors which may significantly affect potential outcomes. This material should not be considered an offer or recommendation to buy or sell a security. While information and sources are believed to be accurate, Allio Capital does not guarantee the accuracy or completeness of any information or source provided herein and is under no obligation to update this information.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Performance could be volatile; an investment in a fund or an account may lose money.
There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
This advertisement is provided by Allio Capital for informational purposes only and should not be considered investment advice, a recommendation, or a solicitation to buy or sell any securities. Investment decisions should be based on your specific financial situation and objectives, considering the risks and uncertainties associated with investing.
The views and forecasts expressed are those of Allio Capital and are subject to change without notice. Past performance is not indicative of future results, and investing involves risk, including the possible loss of principal. Market volatility, economic conditions, and changes in government policy may impact the accuracy of these forecasts and the performance of any investment.
Allio Capital utilizes proprietary technologies and methodologies, but no investment strategy can guarantee returns or eliminate risk. Investors should carefully consider their investment goals, risk tolerance, and financial circumstances before investing.
For more detailed information about our strategies and associated risks, please refer to the full disclosures available on our website or contact an Allio Capital advisor.
For informational purposes only; not personalized investment advice. All investments involve risk of loss. Past performance of any index or strategy is not indicative of future results. Any projections or forward-looking statements are hypothetical and not guaranteed. Allio is an SEC-registered investment adviser – see our Form ADV for details. No content should be construed as a recommendation to buy or sell any security.
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Brokerage services will be provided to Allio clients through Allio Markets LLC, ("Allio Markets") SEC-registered broker-dealer and member FINRA/SIPC . Securities in your account protected up to $500,000. For details, please see www.sipc.org. Allio Advisors LLC and Allio Markets LLC are separate but affiliated companies.
Securities products are: Not FDIC insured · Not bank guaranteed · May lose value
Any investment , trade-related or brokerage questions shall be communicated to support@alliocapital.com
Please read Important Legal Disclosures
v1 01.20.2025
What We Do
What We Say
Who We Are
Legal
Allio Advisors LLC ("Allio") is an SEC registered investment advisor. By using this website, you accept our Terms of Service and our Privacy Policy. Allio's investment advisory services are available only to residents of the United States. Nothing on this website should be considered an offer, recommendation, solicitation of an offer, or advice to buy or sell any security. The information provided herein is for informational and general educational purposes only and is not investment or financial advice. Additionally, Allio does not provide tax advice and investors are encouraged to consult with their tax advisor. By law, we must provide investment advice that is in the best interest of our client. Please refer to Allio's ADV Part 2A Brochure for important additional information. Please see our Customer Relationship Summary.
Online trading has inherent risk due to system response, execution price, speed, liquidity, market data and access times that may vary due to market conditions, system performance, market volatility, size and type of order and other factors. An investor should understand these and additional risks before trading. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Past performance is no guarantee of future results.
Brokerage services will be provided to Allio clients through Allio Markets LLC, ("Allio Markets") SEC-registered broker-dealer and member FINRA/SIPC . Securities in your account protected up to $500,000. For details, please see www.sipc.org. Allio Advisors LLC and Allio Markets LLC are separate but affiliated companies. Allio Capital does not offer services to Florida.
Securities products are: Not FDIC insured · Not bank guaranteed · May lose value
Any investment , trade-related or brokerage questions shall be communicated to support@alliocapital.com
Please read Important Legal Disclosures
v1 01.20.2025
What We Do
What We Say
Who We Are
Legal
Allio Advisors LLC ("Allio") is an SEC registered investment advisor. By using this website, you accept our Terms of Service and our Privacy Policy. Allio's investment advisory services are available only to residents of the United States. Nothing on this website should be considered an offer, recommendation, solicitation of an offer, or advice to buy or sell any security. The information provided herein is for informational and general educational purposes only and is not investment or financial advice. Additionally, Allio does not provide tax advice and investors are encouraged to consult with their tax advisor. By law, we must provide investment advice that is in the best interest of our client. Please refer to Allio's ADV Part 2A Brochure for important additional information. Please see our Customer Relationship Summary.
Online trading has inherent risk due to system response, execution price, speed, liquidity, market data and access times that may vary due to market conditions, system performance, market volatility, size and type of order and other factors. An investor should understand these and additional risks before trading. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Past performance is no guarantee of future results.
Brokerage services will be provided to Allio clients through Allio Markets LLC, ("Allio Markets") SEC-registered broker-dealer and member FINRA/SIPC . Securities in your account protected up to $500,000. For details, please see www.sipc.org. Allio Advisors LLC and Allio Markets LLC are separate but affiliated companies. Allio Capital does not offer services to Florida.
Securities products are: Not FDIC insured · Not bank guaranteed · May lose value
Any investment , trade-related or brokerage questions shall be communicated to support@alliocapital.com
Please read Important Legal Disclosures
v1 01.20.2025