Trump in 2026: Investment considerations for U.S. affordability and foreign policy

As President Trump moves into the second year of this electoral term, there is a clear strategy to address core affordability issues impacting Americans. Targets include lowering mortgage rates through the purchase of mortgage-backed securities (MBS), as well as energy and finance. Further afield, foreign policy initiatives, including in Venezuela and Greenland, have the potential to accelerate geopolitical realignment. So, what does this mean for investors and markets?

To help investors navigate the shifting landscape, we asked our portfolio managers to share their thoughts on how recent proposed policies and geopolitical events could impact their respective areas of focus in the year ahead.

Fixed income: Support for economic activity with move from Liberation Day to Independence Day

Alex Veroude, Head of Fixed Income

“The U.S. will celebrate 250 years since its foundation as an independent country this year. Whether the festivities translate into stronger economic growth is debatable, but there are plenty of factors that should support economic activity in 2026. Consumers and companies will benefit from tax cuts enacted in the One Big Beautiful Bill Act; de-regulation has the potential to alleviate corporate roadblocks and encourage mergers and acquisitions; and monetary policy in the U.S. is likely to see further interest rate cuts.

On the negative side of the ledger, the distorting impacts on data following the government shutdown in October and November of last year may be a source of volatility in the near term, particularly in relation to jobs. Additionally, while we are arguably past peak tariff volatility – unless the Supreme Court throws them out – we still need to be watchful for any second-order effects on inflation.”

Short-duration fixed income: Balance of risks favors front end of the yield curve

Daniel Siluk, Head of Global Short Duration & Liquidity | Portfolio Manager

“Biden-era big government initiatives have given way to Trump-era fiscal expansion. At the same time, the Federal Reserve (Fed) is seeking to reduce the maturity of its holdings, removing one of this market segment’s marginal buyers. Efforts to stimulate growth through aggressive fiscal policy, especially amid already elevated inflation, have heightened investor concerns about the potential for upward pressure on sovereign yields and curve dynamics. While a material steepening has yet to emerge, the combination of increased supply and shifting demand warrants close monitoring, and we believe the balance of risks currently favors the short-term maturities at the front end of the curve.”

Housing/mortgage-backed securities: Impact of government-led buying on mortgage rates likely modest

Nick Childs, Head of Structured and Quantitative Fixed Income, John Kerschner, Global Head of Securitised Products

“President Trump has proposed several initiatives intended to address housing affordability. His recent directive for government-sponsored entities (GSEs) Fannie Mae and Freddie Mac to purchase US$200 billion in mortgage-backed securities (MBS) is intended to push down mortgage rates. The GSEs have already been buying MBS at a significant clip since mid-2025, and we expected continued buying and an increasing presence from domestic banks. However, we think the impact on mortgage rates will be modest because, unlike the Fed, the GSEs don’t typically take duration out of the market; rather, they issue callable bonds and/or hedge, and that exposure must be borne by other market participants.

We remain bullish on overall housing, and mortgage credit in particular. While housing markets have slowed down, there is still demand out there. If rates do come down, and we think the Fed is likely to cut at least once or twice, that will be very good for home price appreciation.”

Healthcare and biotech: Potential to benefit from easing headwinds and growth potential

Sean Carroll, Client Portfolio Manager

“For most of last year, policy uncertainty dominated the healthcare sector, leading to a period of underperformance that has resulted in some of the lowest relative price-to-earnings (P/E) ratios in the sector’s history. But for 2026, some regulatory risks have started to ease. Investors, for one, now see a way around onerous pharmaceutical tariffs and have better clarity on drug pricing reform. The Food and Drug Administration (FDA) has also proven its support for a strong U.S. biopharma industry, having largely met review deadlines in 2025 and introduced new programs for accelerating drug approvals. We therefore see a supportive backdrop for why healthcare stocks could excel in 2026.”

Energy & utilities: Be ready to actively navigate volatility

Noah Barrett, Research Analyst

“The situation in Venezuela highlighted how quickly geopolitical shifts can ripple through energy markets. While near-term price impacts were muted, the longer-term outlook hinges on policy clarity, infrastructure investment, and improved confidence around political stability. For investors, these events highlight the value of an active management approach that is disciplined and prepared to navigate volatility, assess company-specific exposures, and position for opportunities as the situation evolves.

Shifting to the utilities sector, with midterm elections in 2026, discussions around customer bill affordability will remain an area to watch given the large level of investment needed to meet forecasted power demand. Regulated utilities are likely under the most pressure, given they are the face of the industry, with a business model that is predicated on spending CapEx to grow rate base and earning a regulated return on that investment. Should customer bill affordability become a political hot potato, we could see talk of less allowed rate base growth or lowered allowed returns on equity, both of which would be negative for the utility companies.”

Industrials/Materials: Watch for a potential short-cycle recovery

David Chung, Research Analyst

“Developments and updates on tariffs, geopolitical stability, and consumer/business confidence remain the key areas to watch for a potential short-cycle recovery in the first half of 2026. New watch items have emerged post-Venezuela and the potential ripple impacts to other nations as the USMCA (United States Mexico Canada Agreement) renegotiation that will come up in the middle of the year. Given the uncertainty of the cyclical backdrop and low visibility of macro variables, investors might focus on companies with self-help idiosyncratic drivers led by strong management teams to manufacture solid profit growth even during uncertain times.”

Financials: Look for alternatives to 10% cap on credit card interest rates

John Jordan, Portfolio Manager | Research Analyst

“As part of his early 2026 push to address affordability issues, Trump has called for a 10% cap on credit card interest rates for one year. While such a change would have serious implications for industry profits, we think it’s unlikely to be implemented in its current form. Importantly, enforcing it would require legal authorization from Congress, and early reactions suggest little support.

If implemented, the industry would have to restructure and significantly withdraw credit from consumers, which is why such proposals haven’t moved past legislative committees in the past. Lowering the cap to 11% or 12% – or even 20% – would mean higher risk customers will see substantially different economics, including less (or no) access to credit and higher fees.”

Ex-U.S. equities: Geopolitical shifts lead to disconnects and potential opportunities

Julian McManus, Portfolio Manager

“The shift in geopolitical tectonic plates has accelerated recently, first with the capture of Nicolas Maduro and most recently with Donald Trump’s strident rhetoric around acquiring Greenland. Interpretations range from “this is just the Art of the Deal” to “this echoes aggressive territorial expansion of the past”.  The reality falls somewhere in between, but it is fair to say that the revival of the Monroe Doctrine is forcing the global economy further toward a bi-polar construct (with China controlling the opposite pole).

This is playing out in real-time: Witness how the recent disruption of the Dutch semiconductor company Nexperia (now under Chinese ownership) threatened to cripple the auto industry. It demonstrates that global supply chains are still tightly enmeshed and optimized for cost, rather than resilience (or “local for local”). We see risk to companies with long supply chains, which are exposed to further disruptions as a protracted industrial divorce plays out between the U.S. and China.

We see opportunity in more obvious areas such as defense, but also less obvious beneficiaries such as banks (localizing supply chains is inherently inflationary and requires capital). At the same time, China’s approach to a command-and-control economy is more likely to produce national champions.

Finally, one of the greatest disconnects for investors, in our view, is the gap between valuations at western technology companies. For investors to place a geopolitical risk premium on Taiwan is understandable, but to then not apply the same logic to much of the Magnificent 7 strikes us as a failure of efficient markets and a gift for global investors who can see the entire opportunity set.”

IMPORTANT INFORMATION

Actively managed investment portfolios are subject to the risk that the investment strategies and research process employed may fail to produce the intended results. Accordingly, a portfolio may underperform its benchmark index or other investment products with similar investment objectives.

Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.

Energy industries can be significantly affected by fluctuations in energy prices and supply and demand of fuels, conservation, the success of exploration projects, and tax and other government regulations.

Health care industries are subject to government regulation and reimbursement rates, as well as government approval of products and services, which could have a significant effect on price and availability, and can be significantly affected by rapid obsolescence and patent expirations. 

Financials industries can be significantly affected by extensive government regulation, subject to relatively rapid change due to increasingly blurred distinctions between service segments, and significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition.

Mortgage-backed securities (MBS) may be more sensitive to interest rate changes. They are subject to extension risk, where borrowers extend the duration of their mortgages as interest rates rise, and prepayment risk, where borrowers pay off their mortgages earlier as interest rates fall. These risks may reduce returns.

Securitized products, such as mortgage- and asset-backed securities, are more sensitive to interest rate changes, have extension and prepayment risk, and are subject to more credit, valuation and liquidity risk than other fixed-income securities.