Donald Trump’s resounding US election clean sweep has brought Republican control over the House of Representatives and the Senate. However, investors fearful of what more power could look like for the President-elect’s second term may look to escape the uncertainty through Contracts for Difference.
Trump has wasted no time in setting out his plans for his second term in the White House, and although markets have responded favorably to the prospect of a growth-focused emphasis on deregulation throughout several industries, the prospect of high tariffs may ultimately spook Wall Street.
In the month that followed Trump’s emphatic election win on November 5, 2024, the S&P 500 rallied more than 5% in a movement that appeared to underline support for the new administration. However, December has seen the index undergo a correction that may indicate that initial enthusiasm is weakening.
With economists unsure over what direction Trump’s second term could take, investors may look increasingly to Contracts for Difference (CFDs) for exposure to global assets as a safe haven measure.
What are CFDs?
Contracts for Difference have become increasingly popular in recent years, and Global Markets Estimates suggest that the CFD market will grow at a CAGR of 4.3% from 2023 to 2028.
What are CFDs? Crucially, Contracts for Difference allow investors to make a profit from price movements of assets without actually owning the underlying asset itself. This means that it’s possible to buy shares globally via a seller in the form of a CFD.
CFDs track the price of their underlying assets, allowing investors to use margin trading and immediate execution, rather than clunkier stocks and shares trading.
It’s also possible for Contracts for Difference to track the prices of stocks, indices like the S&P 500, commodities, currencies, or a larger range of different asset classes.
For investors looking to build portfolios with a focus on international stocks, CFDs allow easy access to all developed and emerging markets provided that the right seller can be found.
Is the US Heading for Inflation?
One of Trump’s biggest policies on the campaign trail focused on imposing tariffs on imports, and soon after his election win, the President-elect took to social media to claim that he would add a 25% tariff on goods from Canada and Mexico with an additional 10% added to imported items from China.
While the tariffs are likely to renew emphasis on domestic industry while helping to narrow the country’s trade deficit, there’s a danger that they could also drive inflation higher at a time when the economy is only just recovering from historically high rates in recent years.
Analysts have suggested that the higher costs brought on by tariffs will likely be passed on to consumers, which would drive the cost-of-living in the US higher during Trump’s Presidency. We’re also yet to see the retaliatory measures that impacted nations undertake which could impact economic growth.
According to ING research, if new tariffs are fully passed on, they could cost American consumers up to $2,400 per capita annually. With around 70% of all economic activity in the US driven by consumers, this prospective squeeze on the cost-of-living could severely slow the progress of the S&P 500 despite initial positivity in the wake of Trump’s re-election.
Investing in Global Markets
Should Wall Street perform a U-turn against its early optimism in the wake of Trump’s election victory, we’re likely to see both retail and institutional investors build a fresh emphasis on diversification throughout international markets.
With CFDs enabling investors to stretch their capital further due to the need for only depositing a fraction of a trade’s full value to open a position, skepticism surrounding US markets will open the door to the mass adoption of Certificates for Difference as a leading safe haven solution.
CFDs are capable of providing a pathway into both developed and emerging markets for a more bespoke approach to risk. We could even see some of Trump’s attitudes towards oil and gas rub off on investors seeking sustainable access to energy stocks via Gulf Cooperation Council (GCC) nations like Saudi Arabia.
With the top CFD brokers in GCC offering widespread access to Middle Eastern markets, as well as many entry points into opportunities throughout Asia and Europe, Contracts for Difference could continue its rise in popularity should uncertainty sweep through the United States.
However, as investors don’t own their assets with CFDs, the threat of counterparty risk means that it’s worth allocating more time toward researching the institutions selling CFDs and their credibility.
Going Global
Trump’s second term in the White House promises to be a watershed moment for the US political landscape with significant economic implications over the economy. With a pro-growth mindset focused on deregulation as well as steep tariffs, we’re entering into largely uncharted territory as far as the economy is concerned.
For those bullish and bearish on Trump, diversification may be the safest way to embrace the uncertainty surrounding the United States moving into the new year, and Contracts for Difference appear to be an instrument to be reckoned with in providing seamless access to some of the world’s best and brightest markets.