iShares ETFs cover a broad range of asset classes, risk profiles and investment outcomes. To understand the appropriateness of this fund for your investment objective, please visit our product webpage.
Find out more about iShares S&P 500 ETF: https://www.blackrock.com/au/products/275304/
This product is likely to be appropriate for a consumer:
• who is seeking capital growth and/or income distribution
• using the product for a core component of their portfolio or less
• with a minimum investment timeframe of 5 years, and
• with a medium to high risk/return profile
Find out more about iShares S&P Mid-Cap ETF: https://www.blackrock.com/au/products/273425/
This product is likely to be appropriate for a consumer:
• who is seeking capital growth and/or income distribution
• using the product for a core component of their portfolio or less
• with a minimum investment timeframe of 5 years, and
• with a high to very high risk/return profile
Find out more about iShares S&P Small-Cap ETF: https://www.blackrock.com/au/products/273426/
This product is likely to be appropriate for a consumer:
• who is seeking capital growth and/or income distribution
• using the product for a core component of their portfolio or less
• with a minimum investment timeframe of 5 years, and
• with a high to very high risk/return profile
Trump's second term: Global trade and economic impact
Trump’s second term in the White House brings in new implications for global trade, US inflation and economic growth. As inauguration day approaches, we look at some key implementation themes to help investors take advantage of these trends.
Donald Trump’s election to a second term as US president had a dramatic effect on markets in the final quarter of 2024, powering the S&P 500 Index to a 2.4% gain in the three months to 31 December and capping off a more than 20% increase for the US equity market in calendar year 2024.1 However as markets digested the longer-term impacts of a second Trump presidency – namely the risk of higher-for-longer inflation as expansionary policies like deregulation and tax cuts come to the fore – we saw pullbacks in these gains towards the end of the year.
Trump’s inauguration as US president this month may set the stage for one of the key geopolitical risks identified by the BlackRock Investment Institute this year – namely the risk of increased global trade protectionism, with trade barriers around the world now at their highest level in decades (see chart below).
This could have profound implications for US equity performance versus the rest of the world, as well as the growth prospects of key US economic competitors such as China.
Trump’s tariff policies could exacerbate already high trade barriers as supply chains rewire
Source: BlackRock Investment Institute/IMF/globaltradealert.org, December 2024. Chart shows the number of unilateral non-liberalising trade interventions (as classified by globaltradealert.org) taken by countries around the world.
Investment implications of Trump’s second term
Trade – and particularly tariffs – will be a central focus of the incoming US administration. Trump’s tariff proposals, if maximally implemented, could disrupt the global economic and geopolitical environment depending on the execution and reaction.
We’ve seen concerns over US tariff implementation play out in the final weeks of 2024, with both European and emerging market equities seeing significant declines in December and finishing Q4 in negative territory.2 In China, while equity markets saw strong returns in 2024 on the back of economic stimulus promises, we see potential US tariffs having a dramatic impact on growth this year which expansionary domestic policy may not be able to fully cushion (see chart below).
A growth hit
Source: BlackRock Investment Institute, December 2024. CNY refers to Chinese yuan. Forecasts may not come to pass.
For this reason, we continue to be positive on the ‘US exceptionalism’ theme – the idea that corporate strength will continue fuelling the US equity market to significantly outperform its peers – heading into 2025. With the US economy already at the centre of the AI ‘megaforce’, a favourable growth outlook from the incoming administration’s policies, combined with trade headwinds faced by US competitors, may exacerbate the divergence in performance between the US and the rest of the world.
With deregulation and tax cuts also on the policy agenda, markets are also preparing for a ‘higher for longer’ inflation scenario in the US, which we’ve already seen play out in the Federal Reserve downgrading its expectations for more rate cuts in 2025. While widening US budget deficits will likely have negative consequences for the bond market, sectors such as US banks stand to benefit from this scenario as loan profits boom from continuing high interest rates.
With the economic backdrop and downgraded outlook for rates, we remain positive on the US dollar strength continuing to support returns in local currency for Australian investors in the short term. The local iShares ETF range offers both FX hedged and unedged exposures to give investors the ability to target or reduce currency exposure in relation to the US market.
US equity positioning – benefiting from market breadth
As discussed in our recent US equity piece, we believe the outlook for broad-based US exposures is still strong as the new year kicks off, despite the dominance of ‘mega-cap’ technology names in the S&P 500 Index. We see the current lofty valuations in US technology as backed by strong earnings, and think the increasing concentration of tech names in the index (see chart below) makes sense given the striking, AI-led transformation taking place in the global economy.
Ever-bigger share
Source: BlackRock Investment Institute/LSEG Datastream, December 2024. Chart shows the combined market cap of Amazon, Apple, Google, Meta, Tesla, Microsoft and NVIDIA as a share of S&P 500 total market cap. Each stock is included from its IPO year – Amazon from 1997, NVIDIA from 1999, Google from 2004, Tesla from 2010 and Meta from 2012.
However we also think sectors outside of tech – and the US economy as a whole – stand to benefit from the deregulatory agenda of a second Trump term. This is where buying into market breadth through a combination of small and mid-cap US equity exposures can be useful for investors looking to reduce concentration risk.
For Australian investors iShares offers three distinct precision exposures (all unhedged) listed on the ASX; the iShares S&P 500 ETF, iShares S&P Mid Cap ETF and iShares S&P Small Cap ETF. Together these US equity building blocks access 1500 US stocks and 11 sectors of the US economy and allow investors to tap into approximately 90% of US market capitalisation.3
US mid-cap exposures in particular can be a compelling alternative to equal-weight indices when it comes to blending US equity holdings. Comparing the long-term track records of the S&P Mid Cap 400 versus the S&P 500 Equal Weight Index, we see both have returned approximately 8% on average over 10-year timelines.4 During that period we’ve also seen the indices move in almost identical fashion, with a performance correlation of 0.99 over the same 10-year timeline.5
By taking a granular approach to combine both significant weightings to tech through the core S&P 500 Index, and greater market breadth through the S&P MidCap400, investors may find a beneficial mix of US equity exposure to position for the potential positive growth agenda ahead. Whichever approach you take, we think US equities look set to stand out among peers in the months ahead, with a focus on tax reform, deregulation and trade protectionism likely to shore up the ‘exceptionalism’ theme within the new administration’s first 100 days.