The 7 political trends investors should watch now

With a new Republican-led White House and Congress and fast-changing world events, 2025 is set to bring shifts in U.S. government and economic policy. Here are the top policy and regulatory actions to watch, along with what it may mean for your portfolio.

Restrictive immigration policies under the new administration may include more aggressive deportation plans, expansion of the border wall, increased funding for the Department of Homeland Security, elimination of programs like the Deferred Action for Childhood Arrivals (DACA) and reevaluation of visa and asylum seeker programs. Such changes could significantly reduce immigration as soon as mid-2025.

Investor implications

• Fewer immigrants can mean fewer people buying goods and being available to work. For example, reinstatement of the “Remain in Mexico” policy for asylum seekers could reduce net migration from 1.1 million people to about 800,000 annually, according to Oxford Economics, causing GDP to fall by 0.5% in the first five years.
• Additional immigration restrictions could create a further drag on consumer spending and productivity, especially as the U.S. population ages and birth rates fall.

The government reached its federal debt limit of $36 trillion earlier this year, and will likely need to lift or suspend the debt ceiling in the next few months. Federal lawmakers have lifted or suspended the debt limit more than 20 times since 2002; thanks to unified control of Congress and the White House, the GOP should be able to raise the debt ceiling once again.

Investor implications

• While we do not expect the U.S. to default on its debt, upcoming debt-ceiling negotiations may be entangled with lawmakers’ concerns about growing government debt and deficits, ultimately slowing the GOP’s progress on broader policy goals, such as corporate and individual tax cuts.

This could also delay any potential economic benefit from such reforms while creating investor and possibly market uncertainty.

While the new administration’s policies may create headwinds for the traditional energy industry, roughly 80% of the clean energy funds obligated through the Inflation Reduction Act have benefited GOP-controlled states and districts, potentially reducing congressional willingness to unwind clean energy incentives. Not only that, but new policies that increase oil drilling could drive traditional energy prices downward amid already-elevated supply.

Investor implications

• While it may sound counterintuitive, clean energy investments outperformed during President Trump’s first term, when rates were lower, while underperforming under President Biden, when rates were higher and geopolitical risks were elevated
• With two Federal Reserve rate cuts expected in 2025, rate-sensitive clean energy stocks could get another boost.

Healthcare is likely to be a focal point for the incoming administration, with pharmaceuticals, managed care beneficiaries and other insurance companies negatively affected due to:

• the potential for less-stringent vaccine mandates, reducing demand.
• further weakening of the Affordable Care Act (ACA) and related subsidies. 

Investor implications

• These circumstances, along with greater scrutiny of pharmaceutical development and a stricter approval process from the FDA, could drag on pharmaceutical market performance
• In addition, Congress is expected to let enhanced ACA subsidies expire at the end of 2025, which could significantly increase premium payments for some policyholders.

Key provisions from President Donald Trump’s 2017 Tax Cuts and Jobs Act affecting individuals are set to expire at the end of 2025, including changes to individual income tax rates, the standard deduction, personal exemptions, the alternative minimum tax and estate taxes.

Should the provisions expire, it is estimated to increase taxes for approximately 62% of tax filers.

Investor implications

Tax policy will be a central element for the first year of President Trump’s agenda. Expect a unified Congress to extend most of the expiring provisions, with lawmakers potentially incorporating other tax breaks that may spur the economy. These could include:

• an increase in (or even elimination of) the current $10,000 state and local tax (SALT) deduction cap.
• a time-limited tax holiday for tips and overtime.

During his first term, President Trump cut the corporate income tax rate from as high as 35% to a permanent 21% flat rate.

While he has proposed lower rates, a swelling federal deficit and a potential need to offset other tax cuts may lead Congress to maintain the current 21% corporate tax rate.

Investor implications

• Flat or rising corporate income taxes could disappoint financial markets hoping for a corporate tax cut.
• However, any possible tax increases would likely be limited, such as targeting U.S. multinational companies to incentivize them to “reshore” operations in the U.S. 

During the 2024 campaign, President Trump proposed aggressive tariffs on Chinese, Canadian and Mexican goods. While we expect the proposal to be used as a negotiating tactic, if enacted the tariffs would likely increase U.S. inflation and negatively impact productivity.

Investor implications

• Specific industries and sectors are particularly exposed to tariff risk, such as businesses that primarily manufacture goods overseas and depend on U.S. imports for revenue.
• Even the threat of tariffs can impact stock prices. For example, a Morgan Stanley index of tariff-exposed stocks¹ rallied based on former Vice President Harris’s solid debate performance last fall in anticipation of a Harris win and the continuation of current tariffs. However, the index immediately sold off after President Trump’s November electoral victory in anticipation of increased tariffs.

Ultimately, we expect a slower pace for Republican policy goals, such as broad tax cuts and swift budget negotiations, than what was promised on the campaign trail. Against a backdrop of rising geopolitical tensions, U.S. policies around tariffs, immigration and deregulation, could affect sectors like health care and energy. This could add greater uncertainty for investors in 2025.

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The source of this article, US Policy Pulse: 10 Policy Actions To Watch in 2025, by Monica Guerra, Morgan Stanley Wealth Management Global Investment Office, was originally published on 1/20/2025.