Cathie Wood: How Trump’s policies could reshape market dynamics

In fact, President Trump often references economic activity, employment, and the stock market as gauges of government policy success, and he has stated that his goal is to lead one of the most successful administrations in history.

Believing that taxes and regulation have stifled smaller businesses — the backbone of employment in the US — the Trump administration is likely to convince Congress not only to preserve the tax cuts scheduled to expire by year-end, but also to cut other business and individual tax rates and deregulate industries in which large corporations have armed lobbyists and benefitted from “regulatory capture” at the expense of small- to mid-sized companies. As a result, the bull market in equities is likely to broaden out from just a few cash-rich, large-cap stocks to a broad swath of stocks that have been hampered by the supply shocks, the record-breaking burst in interest rates, and the rolling recession of the last four years.

While a broad-based expansion is likely to curb the federal deficit as a percent of GDP, the Department of Government Efficiency — DOGE — could change the deficits trajectory more fundamentally and convincingly. Elon Musk has stated that government spending is taxation: to pay for spending, taxes must increase today, in the future, or through inflation, the most regressive tax of all. One of ARK’s core principles is that crafting a winning solution requires us to discern the problem with precision. The prospect of lower deficits should allay fears in the bond market, helping to relieve pressure on the 10-year Treasury bond yield and bring it to a level determined more purely by real GDP growth and inflation.

In the context of stronger and broader-based growth, the biggest surprise could be lower-than-expected inflation. The consensus view is that rapid real growth will cause inflation; we believe that history suggests otherwise. From the beginning of the Reagan Revolution in the early 80s until the end of the tech and telecom bubble, inflation fell in tandem with rapid real growth. Why? Disciplined monetary policy and fiscal policy, rising productivity growth associated with the explosive growth of personal computers, and the strength of the dollar all drove inflation down.

In our view, those four variables are moving in the same direction today as they were moving during the 80s, perhaps more dramatically. The technology revolution promises to keep monetary policy honest — think bitcoin and other crypto assets. DOGE and deregulation should inspire animal spirits in the private world to compete more aggressively against large companies that have been protected by regulation and other government intervention. Indeed, deregulation should cause a resurgence in mergers and acquisitions (M&A), reintroducing into the equity market “price discovery” as strategic buyers target innovative companies that have been starved for capital by overly zealous antitrust regulators. The emergence and convergence of breakthrough technologies like artificial intelligence, robots, energy storage, blockchain technology, and multiomics sequencing are likely to drive sustained productivity gains — in both the private and the public sectors — to unprecedented levels.

Furthermore, in response to an increase in the return on capital in the US relative to other countries, the US dollar should continue to strengthen. Indeed, as the odds of a Trump victory shortened last year, the US dollar gained momentum.

Uncertainty during the transition could add to the wall of worry that has kept the markets on edge recently. Will tariffs trigger another bout with inflation? We think not: Instead, those tariffs should be selective and incremental, their discrete effects ultimately displaced overwhelmingly by tax cuts, deregulation, and dollar appreciation. Indeed, we believe the market is likely to discount a successful Trump administration, which could turn out to be one of the most successful administrations since the Reagan Revolution.

• Cathie Wood is the founder of Ark Invest. Her fund was the best-performing global equity fund in 2020 and 2023 due to her early investments in firms such as Tesla and Zoom. She has recently spoken of her strong Irish background. Her father was from Donegal, her mother from Kerry, where the family lived for a period when she was a child.