Trump 2.0. Brace for Turbulence in Global Financial Markets—Indian Markets Not Spared. What’s Next for Stocks, Bonds, Gold, Interest Rates, and Oil Prices?

As Donald Trump prepares for a second term in the White House, the global financial markets are already bracing for waves of uncertainty. The ripple effects of his trade policies are set to impact stocks, bonds, gold, interest rates, and oil prices worldwide, including in India.

Volatility on the Horizon

The market volatility we’ve witnessed recently is expected to persist, fueled by speculation about Trump’s trade strategies. The focus is squarely on the potential global economic consequences of higher tariffs, which could trigger inflationary pressures and disrupt trade flows.

Trump’s proposed tariffs on imports to the US could drive up the prices of goods in American stores, stoking inflation. This could prompt demands for higher wages, adding further strain to the economy. Simultaneously, his plans to curb immigration might shrink the available labor pool, exerting additional upward pressure on prices.

What Could Trump’s policies mean for United States Economy?

• Trump’s tariff policies might strengthen manufacturers focusing on the US domestic market. Strengthening US supply chains could give smaller American companies an edge, as they are likely to benefit from increased demand for locally sourced products.
  A higher interest rate environment, if the Federal Reserve slows its pace of rate cuts as expected, could provide a tailwind for the US financial sector.

• Additionally, Trump’s potential push for further deregulation might give banks more freedom to lend in the short term. While this could drive profits, it also raises long-term risks, especially if the economy faces another financial shock.

• Companies in the gig economy, such as ridesharing and delivery platforms, faced pressure during the Biden administration due to stricter labor rules. These rules made it harder to classify workers as independent contractors.

• Under Trump, lighter regulation of the labor market could benefit these companies, which rely heavily on a flexible, self-employed workforce.

• Technology stocks have been under strain amid rising interest rates, and the uncertainty surrounding Trump’s tariff policies could keep this trend going. Tariff-related concerns might continue to weigh on the sector, particularly if supply chains are disrupted.

What Could Trump Mean for Bond Markets?

Inflation and Yields – Bond markets have been rattled by fears of inflation due to Trump’s proposed tariffs, pushing up yields on government debt. Concerns about the administration’s borrowing plans, driven by Trump’s tax cut proposals, are also adding to investor anxiety.

What’s Next for Bond Prices?

If Trump’s tariffs turn out to be less severe and inflationary pressures are lower than anticipated, bond prices could stabilize and recover. For now, however, bond investors are likely to remain cautious and vigilant.

What’s Next for Oil Prices Under Trump 2.0?

With Donald Trump’s return to the White House, his “America First” approach is likely to heavily influence energy policy. Here’s how his plans could shape the future of oil prices – Trump’s administration is expected to double down on energy independence, continuing the trend of increased drilling permits seen during the Biden era. He has pledged to accelerate fossil fuel production while rolling back greener policies implemented under Biden’s Inflation Reduction Act.

If the US ramps up oil production, global supplies could increase, theoretically helping to stabilize or lower prices. However, this is unlikely to happen immediately, as energy companies may remain cautious about overproducing to maintain profitability.

Trump has also promised to end the war in Ukraine. While this goal appears ambitious in the short term, a resolution could ease market supply concerns, especially if sanctions on Russian oil are lifted. This would likely have a calming effect on global energy prices.

Insights from Nicolai Tangen, CEO of Norges Bank Investment Management In Perspective to India

As CEO of the world’s largest sovereign wealth fund, overseeing $1.7 trillion in assets, Nicolai Tangen offers valuable insights into global markets.

Tangen stated that nearly a third of the fund’s assets are in Europe, but with Europe’s slowing growth, diversification into the US, Asia, and India has increased. India now accounts for 1.8% of the fund’s investments, with over $30 billion invested—double the amount from five to eight years ago.

Tangen also spoke about India’s thriving democracy, entrepreneurial spirit, and strong leadership as driving factors behind its growth, noting that India’s robust IPO market, the country continues to be a critical part of the fund’s diversified portfolio.

Supply Chain Diversification from China, India

The global shift to diversify supply chains away from China is no longer just a talking point—it’s a reality. Companies across the US and Europe are actively working to de-risk their operations, and India has emerged as a significant beneficiary of this trend. Diversifying supply chains makes strategic sense for businesses looking to reduce over-reliance on a single geography. India’s increasing role in global supply chains illustrates its potential as an alternative to China, a trend that is likely to gain momentum in the years ahead.

However, he also shared some concerns about India. 

While India is well-positioned to attract more supply chain activity, there is a valid concern – valuation risks.

India’s equity markets have been notably strong, often outperforming global peers; however, this raises questions about whether valuations are overheating. Investors and companies alike must tread cautiously to avoid potential pitfalls, he stated.

The Last Bit

The rise of dominant leaders and geopolitical tensions between blocs like the US and China adds to the uncertainty. While this bifurcation of the world economy reshapes trade, it also intensifies the risks tied to global commerce.

Coming to India, despite its strong position in global supply chain diversification, India faces its challenges. With Nifty earnings growth for FY25 projected to be the slowest since COVID, India’s growth story may face temporary hurdles.

Indian markets are not immune to the global tremors. A stronger dollar could make oil—India’s largest import—more expensive, pressuring inflation and the fiscal deficit. Meanwhile, any shifts in US trade policies could disrupt supply chains, impacting export-driven sectors.

As the world faces the uncertainties of Trump 2.0, the key for investors will be to stay vigilant, diversify portfolios, and closely monitor global developments. The road ahead promises to be turbulent, with opportunities and risks unfolding in equal measure.

Investors and businesses need to adopt a balanced perspective—recognizing the opportunities while staying vigilant about potential risks in a rapidly changing global financial markets.