1834 Wealth Management: Trump 2.0 and What We Are Watching

1834 Wealth Management: Trump 2.0 and What We Are Watching

By 1834, a division of Old National Bank

President Trump's agenda for a second term could bring substantial changes. The labor market, inflation, and U.S. debt could all move dramatically depending on how much Trump can do. Below are several key issues that we are watching.

Immigration

Trump has proposed massive deportations and stronger security at the Southern border. The labor market is cooling but still tight, and could tighten further depending on the workforce's future.

Immigrants comprise almost 19% of the U.S. labor force, the highest percentage in recorded history, according to the U.S. Bureau of Labor Statistics. Agriculture, construction, health care, and technology are all industries facing a labor shortage. Immigrants have filled in some gaps. Various industries could be adversely impacted if the available employee pool shrinks. Also, there are 1.13 job openings per job seeker. While vacancies are trending down, wage inflation could rise again if employers must pay workers more.

Trump's immigration plans could shrink the U.S. GDP; however, it is difficult to say by how much since it is unknown how many people will be deported and blocked from entering the country.

Tariffs

Trump wants tariffs on other countries' goods (the percentage against specific countries has changed). If businesses pay more for foreign goods, consumers often pay the price. Academic and governmental studies found that the current tariffs tax Americans by an annual average amount of $625 per household. Also, we do not expect a major renaissance in domestic manufacturing because it would take large tariffs to make U.S. manufacturers competitive with foreign ones.

It should be noted tariffs are a one-off price shock, and some of Trump's proposed tariffs may be a bargaining tool to achieve other international objectives.

Social Security

Trump endorses protecting Social Security and has discussed making it tax-free, which could further strain the system's funding. According to a recent study by the Wharton School of the University of Pennsylvania, cutting taxes on Social Security benefits could cost $1.2 trillion over 10 years.

Some models show the system's trust funds reserves will be insolvent in about 10 years (it should be noted that some benefits would still be paid after this timeline). Eliminating part of the system's revenue stream will likely strain Social Security benefits further.

Social Security tax cuts could also increase the Federal government's deficit and debt. Congress might be a roadblock for at least part of this plan, partially because of slim Republican majorities. The margin for defections will be narrow.

For additional information go to 1834.com/insights.

REFERENCES

FactSet Service, Moody's Analytics, Board of Governors of the Federal Reserve System, Federal Reserve Bank of St. Louis Economic Research, Bureau of Economic Analysis, First Business Trust & Investments, Fidelity Investments, Morningstar, Wall Street Journal, New York Times, The Hill, Piper Sandler Research, Advisor Perspectives, Russell Investment Research, Nasdaq, BlackRock, JP Morgan, Schroders, Midland State Bank, Nuveen, CQG Inc., Alliance Bernstein, Capital Economics, IEA, IMF, DataTrek, Congressional Budget Office, Goldman Sachs, CNBC, Oxford Economics, Wharton School of the University of Pennsylvania.

DISCLOSURES

Investment and securities information presented herein is unique to 1834's approach to investment management. All information and opinions have been obtained from sources believed to be reliable and current at the time of publication but are not guaranteed and do not claim to be a complete statement of all material factors. Examples or other representations made herein are for illustrative purposes and are not intended to be specific legal, tax, or investment advice and do not represent a solicitation.

Investments and strategies that may be presented may not be suitable for all investors. 1834 wealth advisors and the expanded 1834 team will work with interested parties to execute plans based on further investigation of your specific goals and risk tolerance. We may also consult with your attorney or tax advisor in certain situations.

The comments, views and opinions expressed herein are those of the author and 1834. From time to time, Old National Bancorp affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report. Old National

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Past performance is no guarantee of future results. This commentary has been prepared for informational purposes and may include some forward-looking views which reflect current expectations and opinions which reflect our judgment and are subject to change. Market conditions may change due to further uncertainty, market volatility and/or economic disruptions.

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