How investors should navigate Trump’s second term

With Trump driven news flow in 2025 already exceeding Biden’s entire four years of Presidency, it’s a useful time to step back and gain perspective on why these actions have been taken, where to from here, and how to navigate through Trump’s markets given we are only in the first half of the first year of his four-year term.

Investors who were in the market for Trump’s first term from 2017 to 2020 will remember how he operates. Irrespective of experience, having a clear framework around why he takes certain actions, what to expect going forward, and how to position for these events will prove useful through the end of his second term.

As to why Trump acts as he does; Trump’s approach is to keep everyone in a state of confusion by rapidly changing the framework for any negotiation, then before market participants can process and digest each change, he will shift the goalposts once again. This approach was repeated throughout his first term as President and reasonable investors are prepared for it to repeat throughout his second.

A useful recent news article by former trader turned neuroscientist, John M Coates, highlights how this approach of negative news flow being delivered at unpredictable intervals creates a perfect environment to seek concessions from negotiating counterparties, and neatly explains the ‘why’ behind Trump’s actions. Specifically, this uncertainty in general is unpleasant and counterparties will often accept less attractive outcomes simply to put an end to the uncertainty.

Trump’s playbook reliably includes starting negotiations by anchoring to an ‘ask’ previously thought unreasonable. In this case, an initial 145% tariff on China - then walking the ‘ask’ back to a number that originally would’ve been seen as excessive. As it stands today, there is a 30% tariff on China. After contemplating the impact of the more unreasonable ‘ask’, the updated request suddenly looks reasonable, if not a significant concession.

Lastly, in terms of understanding events, it’s worth remembering that Trump favours being the centre of attention. Market participants should therefore expect a significant announcement from him at least monthly, if not weekly. These moves will often be unconnected to the current news cycle, which we saw in the first few months as Trump moved between immigration, government inefficiency, budgetary and trade issues without warning.

Given this backdrop, how should investors proceed?

Firstly, it is critical that coming into any potential news flow, investors aren’t overexposed to a theme. For example, coming into the March and April tariff announcements, tariff-affected stocks were broadly trading at price levels that reflected complacency around risks. Given we know that Trump’s first move is always an excessive ‘ask’, exposure going into these events often proves disadvantageous.

However, once the unreasonable request has been made, investors should seek to add exposure in short order. Given we know Trump has a repeated pattern of an unexpectedly negative first request, followed by a walk-back, before eventually landing on a much more benign outcome, risk is mispriced after that first piece of news flow. For tariffs, this was “Liberation Day”. For DOGE, this was when Elon Musk discussed $1-2 trillion in government budget cuts, before eventually landing on under $200 billion.

The final step is to return stock exposure to more ‘through-the-cycle’ levels once the fear has dissipated and the news cycle has moved on. That can be then considered the end of a successful campaign.

The above playbook reflects the concept popularised by Warren Buffett - ‘to be fearful when others are greedy, and greedy when others are fearful’ - however updated to reflect the way in which Trump operates.

Taking a step back, while this is clearly a more uncertain operating environment than we’d expect of Trump’s more conventional predecessors and therefore does argue for a higher risk premium in general, it does create opportunities for active investors to take advantage of the uncertainty.

In WAM Global (ASX: WGB), we came into ‘Liberation Day’ not materially exposed to ‘tariff affected’ names – i.e. ‘be fearful when others are greedy’. However, in the subsequent sell-off, we chose to add to names we thought were being oversold on excessive pessimism – i.e. ‘be greedy when others are fearful’.

As it stands today, the portfolio is well positioned for a range of environments. However, one thing we have confidence in is that we haven’t seen the last significant announcement from Trump’s term as 47th President, something we, as active investors, welcome as a chance to opportunistically position the fund to our shareholders’ advantage.

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WAM Global (ASX: WGB) provides investors with exposure to an actively managed diversified portfolio of undervalued international growth companies and exposure to market mispricing opportunities. For further information, please visit the WAM Global website.