Post-Election Perspectives From Our Investment Experts

As the dust settles after the November U.S. election, new themes are beginning to dominate the financial landscape, from deregulation to taxes to immigration. To navigate this evolving environment, we brought together four seasoned investment professionals— one top-down strategist and three bottom-up thinkers—covering an array of asset classes. In a lively discussion, they reflected on their pre-election expectations and dissected the themes they believe are shaping the road ahead.

Participants:

• Ward Sexton, CFA, Partner, Portfolio Manager, U.S. Growth and Core Equity
• Olga Bitel, Partner, Global Strategist
• Marcelo Assalin, CFA, Partner, Head of Emerging Markets (EM) Debt
• Matthew Fleming, CFA, Head of U.S. Value Equity

Before we start, can one of you comment on how you analyze the impact of a political event without being political?

Sexton: I don’t hold or express any political favoritism in these discussions; my focus is strictly on evaluating market impacts. That’s something we emphasize as a team—your personal politics don’t matter here. Our job is to assess how policies affect the markets, and different policies raise questions about potential winners and losers, which we aim to analyze objectively.

Olga, what is your outlook today, from a macro perspective?

Bitel: The U.S. economy is in an expansion; it achieved soft landing two years ago and has been growing at 2.5% to 3.0% per year since. The policies that the incoming administration is proposing could take us either to the left or to the right of this range.

Could you detail each scenario?

Bitel: On the bullish side, reducing taxes and regulatory burdens is likely to elevate growth. Corporate tax cuts usually flow straight to the bottom line, so the same rate of top-line growth produces better profits. Genuine reduction in regulatory burden can help small(er) businesses to the extent that their compliance costs are high relative to their employee base. Undoing some of the rules that were put in place post-2008 global financial crisis can unlock more banking and credit activity in the smaller, more regional banks. All these developments are likely to contribute to stronger gross domestic product (GDP) growth and be welcomed by financial markets.

Contemplated immigration and deportation policies risk curtailing growth and fueling domestically produced inflation, just when many consumer cohorts are still rebuilding their purchasing power following the 2021-2022 episode.

What might be the economic implication of these policies?

Bitel: Much of what the incoming U.S. administration proposes we’ve already experienced sometime in the last 50 to 120 years. So we have lots of empirical evidence on which to draw in assessing the implications of the proposed policies.

From 2008 through 2014, the U.S. authorities deported about half a million people under an initiative called Secure Communities (SC). The SC policy experience indicates that for every 1 million unauthorized immigrant workers deported from the United States, 88,000 U.S. native workers were driven out of employment.

Direct deportations costs are borne by the U.S. taxpayers. Official estimates of the cost of deportations are scarce, but the best estimates suggest that each deportation costs about $13,000 in current dollars. So, deporting 1 million people would cost the public purse about $13 billion.

Although tariffs are likely to play a role in the economic and geostrategic priorities, scope and timing remain unclear. — Olga Bitel, Partner

I’m sure Marcelo would love to hear your thoughts on tariffs, as they could significantly affect many EM countries.

Bitel: Although tariffs are likely to play a role in the economic and geostrategic priorities, scope and timing remain unclear. The proposed Treasury secretary has articulated what is dubbed a 3-3-3 plan. It stands for 3% growth for the U.S. economy, 3 million additional barrels of oil or equivalent, and a 3% federal budget deficit.

If enacted, this plan envisions stronger GDP growth, lower budget deficit, and lots more energy exports to narrow the U.S. trade deficit. Tariffs are likely to be used as a carrot-and-stick tool in negotiating changes in international trade flows, limiting immigrant inflows, and other U.S. administration priorities.

Recent experience with tariffs indicates that they act as a tax on domestic consumers. They’re also an implicit, an indirect, tax on exporters. Broad-based, revenue-raising tariffs may be rather disruptive for both the U.S. economy and its international trade partners. The scale of potential disruption may act as a break on the scope of tariffs actually implemented.

Assalin: This base case is highly constructive for global risk sentiment, addressing concerns about the inflationary impact of policies and their effect on central banks, global rates, liquidity, and economic growth. It suggests that central banks will continue normalizing monetary conditions worldwide, which is particularly favorable for higher-carry fixed income, such as EM credit.

EM growth remains resilient despite some deceleration, supported by strong fiscal and debt dynamics and stable external accounts, and we believe the new U.S. administration’s policies are unlikely to derail this positive outlook.

Marcelo, I assume there will naturally be winners and losers in EM debt?

Assalin: Absolutely. Diversification is a key feature of EM credit, and while new policies may negatively impact some issuers, they could also create opportunities, making active management crucial to identifying value within the asset class.

We see the best value and lower risk in hard currency, dollar-denominated EM debt.

Fundamentals remain strong, and we don’t anticipate significant deterioration, which we believe should keep credit spreads in dollar-denominated hard currency stable.

However, we approach EM local currencies with more caution, especially given the U.S. dollar’s strength. Policies supportive of the dollar, including potential high tariffs on Asian countries with large trade surpluses, may lead to currency devaluations, particularly in countries like China.

That said, we expect policy changes to be gradual rather than abrupt, minimizing near-term disruptions to investment sentiment. While there will be noise, our role is to separate it from the facts and focus on the bigger picture.

Let’s switch to U.S. equities. Matt, do you agree with your colleagues?

Fleming: I do, though I see both good and bad news.

Parts of the small-cap value economy have effectively been in a recession. It wasn’t a soft landing; it was a hard landing. — Matthew Fleming, CFA

What’s the bad news?

Fleming: The bad news (and perhaps where Olga and I disagree a bit) is that parts of the small-cap value economy—like small businesses—have effectively been in a recession. It wasn’t a soft landing; it was a hard landing. And I think that actually went pretty unnoticed largely by pundits.

While many talk about 3% gross domestic product (GDP) growth and a soft landing, the reality for sectors like trucking has been different, with activity at 2014 levels.

Across consumer companies, we’ve seen similar trends. For instance, customers are opting for cheaper imports instead of higher-quality tires, and even staples like baby clothes are seeing declines in sales.

And earnings estimates for many small-cap companies have been slashed.

However, if you’re doing well, if you have access to the stock market and credit, you can fly first class. So, we’ve seen talk about how take-up for its premiere cabins is through the roof, while traffic at restaurant chains goes down. This reflects two key issues: first, a growing divide between the “haves” and “have-nots,” with luxury spending thriving while middle-income spending is declining. Second, we’re still grappling with supply chain hangovers from COVID.

What about inflation?

Fleming: As Olga said, inflation is easing. However, the cumulative effect remains a burden. For example, while steak prices may not rise further, they’re still expensive, forcing consumers to adjust spending patterns.

Is there any good news?

Fleming: Yes, I believe we’re nearing the tail end of these challenges. Inventories are improving, and consumer behavior is normalizing. Businesses are beginning to see positive momentum, despite temporary pauses as they awaited U.S. Federal Reserve (Fed) decisions on rates or clarity on the election outcome.

How does this impact your outlook for small-cap value?

Fleming: We see 2025 as a mixed year with gradual improvement, especially in the second half. By 2026, we expect stronger growth, driven by easier year-over-year comparisons and tailwinds from the economy. While larger companies may face headwinds from a strong dollar and global earnings translation, small-cap domestic firms are less exposed to these risks.

Are tariffs still a concern, in your opinion?

Fleming: Not as much. Many tariffs from the first Trump administration remain in place, so their impact has diminished over time. Companies have adjusted by diversifying supply chains—one example enacted a contingency plan after the election and has since diversified 75% of its sourcing.

Also, much of the current tariff rhetoric seems tied to broader negotiations. In Mexico’s case, tariffs are likely linked to immigration and drug policy, which could lead to reduced tensions. While China remains a concern, many companies have already taken steps to mitigate risks, making tariffs a less significant issue overall.

Additionally, trade offsets, such as support for the agriculture sector, have further softened the impact of tariffs.

Any thoughts on the dollar?

Fleming: I expect a strong dollar going forward, driven by economic disparities and interest rate differences between the United States and Europe, as Marcelo mentioned earlier. This strength will likely create headwinds for multinationals, as foreign earnings face translation challenges. In contrast, small-cap domestic companies, which are less exposed to global currency fluctuations, are better positioned.

Any other macro factors to watch?

Fleming: Yes, the debt ceiling is a key concern. If it isn’t raised, the government could run out of cash by mid-August, and the U.S. Treasury would be unable to issue new securities. Historically, this scarcity has pushed interest rates slightly lower, which could benefit small-cap value stocks. Overall, while challenges remain, I believe the combination of a stabilizing economy, easing inflation, and adjusted trade dynamics creates a favorable backdrop for small-cap value going forward.

Let’s switch to U.S. growth and core equities. Ward, do you agree with your colleagues?

Sexton: I do agree. There has been a large divide between different industries. For instance, for select agricultural manufacturing firms, rising rates have hurt sales. At the same time, government stimulus pumped trillions into specific market channels, benefiting certain stocks significantly and creating a bifurcated market where there is a stark contrast between winners and losers. AI infrastructure exposure created a similar divergence in returns.

We’re monitoring industries heavily impacted by regulation, like trucking and energy. — Ward Sexton, CFA, Partner

Are there other industries you’re watching closely for deregulation?

Sexton: Yes, we’re monitoring industries heavily impacted by regulation, like trucking and energy. For instance, EPA regulations slated for 2027 might never materialize, which may negatively impact new, compliant truck orders. Similarly, air permits for natural-gas-fired generation have been tough to secure, but if permitting eases, that could create opportunities.

How do tariffs factor into your strategy?

Sexton: We analyze potential winners and losers. For example, we own a window company with a favorable cost advantage that is rapidly gaining market share. However, if tariffs were imposed, it would hurt its business model due to how it sources. After a strong rally, we reduced our position— because that risk wasn’t priced favorably in our view.

Do tariffs create opportunities for other companies?

Sexton: Yes. We own a company that makes carbon black for tires. Certain Asian producers appear to have been dumping tires into the U.S., but if tariffs are imposed, it could potentially strengthen the U.S. market and benefit this company. We believe the stock is already attractively valued, so it could potentially benefit if conditions improve.

How do you navigate these macro uncertainties?

Sexton: We evaluate probabilities and assess what’s already priced into stocks. For instance, with a strong U.S. dollar, some stocks have already been impacted. Selling after the damage doesn’t add value, so we hold when the pricing aligns with the probabilities.

How do you incorporate inflation into your approach?

Sexton: Inflation creates opportunities for distributors, who benefit when prices rise because their fairly steady percentage-based margins create profit dollar growth when the revenue grows with inflation. We’ve seen this dynamic play out in steel under the Trump administration and continue under Biden. All else equal, distributors thrive in inflationary environments, and we consider that in our investments.

What’s your overall approach to policy-driven markets?

Sexton: We try to remain flexible, acknowledging that no one can predict outcomes with certainty. By evaluating probabilities, considering what’s priced into the market, and staying aware of government actions, we aim to make informed decisions. Over-conviction in any one scenario can be dangerous, so we focus on balancing the macro environment with stock-specific opportunities.

How do you adjust your strategy to account for rapid shifts in market sentiment and policy changes?

Sexton: We made some adjustments heading into the election and continue to respond to changes in risk/reward for individual securities. For example, we recently added to a position that we feel is embedding a very dire scenario, and we’re taking the other side of that. It’s a calculated risk, though we recognize the uncertainty.

The pace of change is also a key factor. For instance, after the recent election, the 10-year yield rose, likely driven by expectations of populism and inflation. Yet, if significant spending cuts are implemented, that could lead to deflationary pressures. Balancing these opposing forces is challenging, especially with the backdrop of mounting debt levels, which are a growing concern.

In addition, the administration seems to be working within a tight 18-month window—likely aiming to enact policies before potentially losing congressional control. Moving quickly at the federal level can lead to unintended consequences.

Olga, what are your thoughts about Ward’s comment about moving quickly at the federal level potentially leading to unintended consequences?

Bitel: Attempts at overhauling federal spending mirror the efforts undertaken by the first Reagan administration. While the effort was comprehensive, the outcomes tell a story of unintended consequences.

Today, federal employment remains at roughly 1983 levels, but the contractor base has expanded dramatically. There now more than three contractors for every federal government employee. This shows that while optics might suggest cuts, the actual workload—and spending—hasn’t decreased. Incidentally, the Reagan administration presided over some of the largest fiscal deficits during periods of strong growth.

Second, the current political landscape complicates swift action. The Republican House majority is razor-thin, and with a plurality of proposals moving quickly, we’re likely to see a lot of bundling and horse trading. While “efficiency gains” sound appealing, implementing them effectively is another matter entirely.

Lastly, while deregulation can benefit small businesses, much of the regulatory burden sits at the state and municipal level. The next U.S. administration will not be able to address these. Ward’s caution about the speed and efficacy of these changes is well-founded.

Over time, EM countries have reduced their reliance on advanced economies. — Marcelo Assalin, CFA, Partner

Marcelo, anything to add?

Assalin: First, fiscal consolidation is a long and challenging process, and I agree with Olga that implementing these changes quickly isn’t realistic. There’s a lot of noise—for example, Trump wants a strong dollar but also aims to regain external competitiveness with a weaker dollar. It’s contradictory, in my view.

Second, in EMs, we’ve seen a significant shift in trade dynamics. Over time, EM countries have reduced their reliance on advanced economies. Today, intra-EM trade has grown substantially. For instance, more than 50% of China’s exports now go to other EM countries, while only about 15% go to the United States.

This raises an important question: for companies that rely heavily on imports, how quickly can they replace those imports with locally produced goods? This is a critical factor to consider when evaluating their business models.

Sexton: Marcelo, I agree with your point, but the reality is that when supply chains shifted away from China, they didn’t all move back to the United States—they moved to places like Vietnam and Mexico. Reshoring hasn’t happened on a significant scale, and when we fully employ the U.S. workforce, we should see wage inflation, which drives overall inflation.

Once inflation passes a certain threshold, you lose real wage growth because inflation offsets the gains. So, while creating jobs and increasing wages sounds great, it must happen gradually. Otherwise, we end up repeating the same inflationary cycle.

On the regulatory side, dropping some restrictions could unlock growth.

Fleming: Marcelo, I see this as a head-on collision between inflation and tariffs. The administration seems to be playing chicken with these two forces. Many attribute the Trump administration’s success to inflation frustrations, with consumers fed up with rising prices. But the reality is, if a company moves manufacturing from Vietnam to New Jersey, the cost of shoes could skyrocket to $400—it’s just not feasible.

Moreover, parts of the supply chain simply can’t be replicated. For example, TSMC produces nearly 100% of the world’s high-value chips in Taiwan. Similarly, one supplier in Taiwan produces 100% of non-recycled auto collision parts. Replacing that supply base isn’t realistic, even if desired.

There’s no easy solution here, and I expect turbulence ahead as these dynamics play out. We’ll have to wait to see how it unfolds.

Olga, how do you think U.S. policies like the 333 plan impact the dollar and global manufacturing dynamics?

Bitel: The message to avoid tariffs has been clear: manufacture in the United States. For many Chinese companies, it doesn’t matter whether they set up in Thailand or South Carolina—if the doors open and they gain concessions, they’ll move production. This is the same pattern we’ve seen with Japan and Korea in the past, and now it’s repeating with China.

Devaluing the U.S. dollar to aid domestic manufacturers depends on the willingness of U.S. principal trade partners to revalue their currencies. The economic and geopolitical situation is sufficiently different today—relative to, say, the 1980s Plaza Accord—to merit caution on the likelihood of this outcome.

Do you mind expanding on the Japanese auto example?

Bitel: In 1954, the U.S. Secretary of State told Japan’s prime minister that his country would never sell anything to the U.S. because Japanese products weren’t what American consumers wanted. Ironically, that same year, Honda set up a workshop in Southern California for its early motorcycles.

Fast forward to the mid-1970s, and Japan was producing smaller, more energy-efficient cars than the U.S. Another 20 years later, a significant portion of the U.S. car fleet consisted of Japanese brands—though many were manufactured domestically by then. Korea followed a similar trajectory with Kia and Hyundai, though on a smaller scale, as they started exporting to the United States later, in the 1990s.

China is now following the same playbook. Until 2000, China exported virtually no cars, but within three years, the country’s auto exports increased tenfold. While we’ve closed our borders temporarily to curb competition, that won’t last forever. And it’s not just cars. Western pharmaceutical companies are now buying Chinese biotech molecules for drug manufacturing—something that would have been unthinkable five years ago.

Risks—both positive and negative, both domestically and internationally—have increased materially. — Olga Bitel, Partner

How does this tie into U.S. policy and global trends?

Bitel: The administration’s goal appears to be attracting manufacturing back to the United States, promoting the narrative that manufacturing jobs rebuild the middle class.

The strategy aligns with efforts to reduce the current account deficit and fiscal deficits. A lower dollar benefits U.S. exports, particularly energy, while boosting emerging markets and international companies by improving the translation of foreign earnings into U.S. dollars.

Longer-term trends also come into play. For example, ending the Russia-Ukraine conflict would create massive reconstruction opportunities, primarily benefiting European companies. Similarly, a potential land pipeline from the Middle East to Europe could significantly reduce energy costs for European businesses, enhancing their competitiveness against U.S. companies.

The point is that tail risks—both positive and negative, both domestically and internationally—have increased materially. This requires vigilance and the ability to seize opportunities as they arise.

Affordable housing in the U.S. is a persistent challenge, with supply struggling to meet demand. What factors make it so stubborn, and how might it change? How can we profit from those changes?

Bitel: Ward might have more to add, but here’s my take.

COVID created major dislocations in housing, driving demand for suburban homes or moves south and west as people prioritized more space and proximity to family. This sudden shift in demand, combined with stagnant incomes, rising interest rates, and higher mortgage costs, has contributed to deteriorating affordability.

However, supply is already adjusting. Housing price inflation has slowed significantly, such that housing prices in top 20 cities are rising at the pre-COVID pace. Real wages are growing again. A meaningful decline in mortgage rates could further boost the market next year.

It’s also worth noting that around 70% of U.S. households are locked into fixed mortgages in the 3%-4% range. The U.S. housing market is uniquely subsidized with 30-year fixed rates, unlike anywhere else in the world, which cushions the impact for most homeowners. For investors, the key is monitoring how supply, demand, and mortgage rates interact—and positioning accordingly as these dynamics play out.

Sexton: The lock-in effect has softened the impact of higher rates on the housing market. Homeowners with low fixed mortgage rates aren’t being forced to sell, which limits inventory. Housing is also highly localized. For instance, prices in more deregulated markets have dropped because demand fell after a building boom.

Demographics are also a factor. Millennials are now driving demand for homes as they start families, creating tight markets in suburban areas, some of which were previously stagnant. This shift, combined with years of underbuilding, has strained supply. The pandemic accelerated this trend as millennials moved out of cities, creating a surge in demand that the market wasn’t prepared to meet.

Marcelo Assalin, CFA, partner, is the head of William Blair’s emerging markets debt team, on which he also serves as a portfolio manager.

Olga Bitel, partner, is a global strategist on William Blair’s global equity team.

Matthew Fleming, CFA, is the head of William Blair’s U.S. value equity team, on which he also serves as a portfolio manager.

Ward Sexton, CFA, partner, is a portfolio manager on William Blair’s U.S. core and growth equity team.