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11 Jun 2025

There are three types of conversation. The first is about ideas (e.g., philosophy, science, politics), the second is about facts (e.g., hotel options on a trip), and the third is about people (i.e., gossip). While intellectual conversations about ideas are held in the highest regard, most people enjoy and spend far more time gossiping. The rift between President Trump and Elon Musk could be the subject of all three types of conversations. Speculating on what exactly happened between them is fun water-cooler conversation, but an investment-related conversation must focus on what this potential break-up means for Trump 2.0 economic policies. The short answer is probably not much, while other developments are more illuminating.

It's a challenge to pin down  entails because it is a heterodox mix of economic policies. On the one hand, the One Big, Beautiful Bill (OBBB) aims to extend and expand tax cuts; on the other, higher tariffs are economically equivalent to a higher tax on consumers and businesses. Rather than get bogged down debating the specifics, it’s helpful to instead think in terms of an overarching economic ideology. A simple framework that I proposed at the start of the year is to assess whether the Trump 2.0 ideology will ultimately be more MAGA or DOGE.

This framework characterized MAGA as a populist "America First" approach and rejection of globalism, aiming to help people who haven’t benefited from the economic prosperity of the past 20 to 30 years. In contrast, the specific aim of DOGE is to reduce government spending and shrink the deficit, ideologically favoring the private sector to create prosperity. These definitions are subjective, but we believe capture the broad contours of what both are trying to achieve. A further ideological simplification is to say that MAGA benefits labor and DOGE favors capital, so the more DOGE that the Trump 2.0 economic policies end up being, the more constructive the investment outlook.

Two months ago, at “peak tariffs,” neither ideology appeared to be an appropriate distillation of Trump 2.0 economic policies. They certainly weren’t welcomed by investors, nor was the rapidly rising recession risk good for labor. Since then, the actual policy approach has become more capital-friendly with the walking back of some tariffs and by prioritizing other pro-growth aspects of the agenda. The S&P 500 index has responded accordingly, rising 21% from its April low, and is now slightly higher than it was right before Trump was inaugurated. Thus, both MAGA and DOGE are back in play as governing ideologies.

In addition to resetting the table, the initial case favoring a DOGE tilt in Trump 2.0 economic ideology still holds. The Trump “put” for the S&P 500 was further out-of-the-money than investors were assuming earlier this year, but it still exists, which limits how much the policies could favor labor over capital. The  for Treasuries was the triggering factor for the 90-day reciprocal tariff reprieve on 9 April. That put also remains, which favors policies that encourage disinflationary growth to keep rates from going too high. Finally, other key aspects of the Trump 2.0 agenda, including the OBBB and forthcoming deregulation, still adhere to fairly conventional supply-side economic policies.

By that logic, the ultimate arbiter of the ideology being more MAGA or DOGE is whether the policies have a positive impact on aggregate supply. If that happens, economic growth can be at elevated levels while inflation gradually falls. Higher tariffs and the associated supply chain disruptions are a clear negative supply shock, and reducing immigration also weighs on aggregate supply. But using the tariff cudgel to encourage more foreign investment in the US is directionally positive for supply. So are tax incentives in the OBBB, deregulation efforts, and supportive policy for AI development. Just reducing extreme policy uncertainty would be a positive by providing businesses with some clarity necessary for investment decisions. Where all these factors net out is still to be determined, but the bias appears to have shifted towards a DOGE approach over the past two months.

It’s unlikely that momentum will be derailed by Musk’s break with Trump, even if the knee-jerk reaction is to view it as a negative for the DOGE ideology. Still, the policy environment is highly fluid and can change daily, while the markets are pricing in a fairly benign path to trade deals getting done and the passage of the OBBB. These outcomes are not guaranteed, nor is any ideological tilt set in stone. As has already been demonstrated over the past few months, the markets can experience large, rapid swings as investors shift probabilities across the policy scenarios based on incoming information. Investors should be prepared for more of that over the summer.

It's also important to note that a DOGE tilt isn’t necessarily capital-friendly for all investors. The projections of even higher deficits because of the OBBB aren’t great for bondholders, especially if the consequence is higher long-end rates and sustained inflation. Nor would Section 899 be good for some foreign investors and companies if it’s included in the final OBBB bill because it would impose higher taxes on income generated by investments in the US.

The bottom line

The Musk-Trump “break-up” makes for great gossip, and there are factual questions about what this could mean for Musk’s companies. But regarding Trump 2.0 economic ideology, the impact is likely to be minimal. The policy direction over the past two months has shifted towards the DOGE ideology, although it’s far from fully embracing that approach. The strong performance of US equities over this period is consistent with this policy evolution, and supports the conjecture that a DOGE tilt is good for US financial markets. The clock is ticking on the reciprocal tariff reprieve expiring and passing the OBBB bill before the debt ceiling is breached. This doesn’t mean that Trump 2.0 economic policy will be set in stone in the next couple of months. But a MAGA versus DOGE bias should be much clearer by the end of the summer, with the latter the more likely outcome.

6 Jan 2025

There’s no shortage of questions for investors to ponder at the start of 2025: Will inflation continue to decline or will it accelerate? How much more will the Federal Reserve cut interest rates, if at all? Can US exceptionalism continue? But no question is more top of mind or central to the 2025 global investment outlook than what economic policies will Trump 2.0 entail? Sure, higher tariffs, an extension of expiring tax cuts, de-regulation, and stricter immigration are all likely, but their magnitude and sequencing are critical. Like every investor, we can conjecture on the details. Yet in order to formulate a general investment view, it’s also helpful to ask: Will the overall Trump 2.0 economic ideology be more MAGA or DOGE?

Ascribing an economic ideology to both terms is subjective, but their broad contours are fairly clear. MAGA is a populist America First approach, aiming to help people who haven’t benefited from the economic prosperity of the past 20-30 years. The means of achieving this includes higher tariffs, less immigration, more manufacturing jobs, and implicitly more government spending (i.e., larger deficits). At its essence, MAGA policies entail a more activist role for the government to achieve these ends, and a distrust of institutions and big business. In contrast, the specific aim of DOGE is to reduce government spending and shrink the deficit, ideologically favoring the private sector to create prosperity. If MAGA is a rejection of globalism, and an attribute of globalism is maximizing economic efficiency, then DOGE is about the efficient delivery of goods and services. These characterizations are of course simplifications and can certainly be challenged. But the online debate two weeks ago among MAGA and DOGE adherents about the merits of immigration illustrated the point that as economic ideologies, they are distinct.

What does this have to do with an overall investment view? Another ideological simplification is to say that MAGA benefits labor and DOGE favors capital, so the more DOGE that the Trump 2.0 economic policies end up being, the more constructive the investment outlook. Trump has espoused a heterodox economic policy mix that deviates significantly from conventional . But what ultimately matters is whether the chosen policies have a positive impact on aggregate supply, which can keep economic growth at current levels while disinflation progresses gradually.

Given these two ideological options, the case for a DOGE-tilt is stronger for several reasons. First, the Trump “put” for the stock market suggests a limit of how much the policies could favor labor over capital. Second, the for Treasuries should keep rates from going too high, a negative for the economy and equities. This requires less reflationary policies than Trump 1.0 when the starting level of inflation was much lower, and which favors smaller not larger deficits. And third, for all the talk of populism, Trump 1.0 implemented fairly conventional Republican economic policies, with large tax cuts, de-regulation, and tariff increases that were modest except on China. These factors suggest that Trump 2.0 policies will ultimately lean positive for supply, or at least be neutral.

This is only a conjecture, and not hard economic analysis; the path to policy clarity and implementation is likely to be longer and more fraught than investors were assuming two months when they were pricing into markets a “red sweep” reflationary outcome. More significant than the immigration debate was the intra-Republican battle over passing a bill by 20 December to keep the government funded. Another budget deal must be passed by 14 March and the suspension of the debt ceiling expired 1 January, which will require another suspension or ceiling raise by the summer. With a narrow Republican majority in the House and members all along the MAGA-DOGE spectrum, passing any deal won’t be easy.

The MAGA-DOGE policy uncertainty has multiple investment implications. First, markets are likely to lack direction until the policy path becomes clearer, which means range-bound equities and rates. While we may know the policy priorities by the end of January, it could take several months before the actual policy outcomes are known. Second, markets are likely to experience swings within their respective ranges as investors shift probabilities across the policy scenarios based on incoming information. This could happen often and quickly, only to be reversed. Third, market dips are likely to be bought, supported by the Trump and Fed puts, unless investors really start to believe that the economy is headed toward a recession or stagflation. The by-product is volatile market swings because aggressive dip-buying could result in quick reversals of rapid corrections. And fourth, equity performance is unlikely to broaden out until there is policy clarity, especially if inflation remains sticky and Fed rate cuts are in jeopardy.

The bottom line

The end of the election campaign hasn’t spelled the end of policy uncertainty. If anything, there is greater uncertainty now than there was two months ago because the differing economic ideologies within the Republican Party have since become more apparent. Markets may consequently remain on edge, at least through Q1, as they were over the holidays. Our full-year outlook still forecasts solid GDP growth and gradual disinflation, and for the Fed to cut rates by another 50bps, all of which are directionally positive for financial markets. The Trump 2.0 economic policy details will matter, but the overall approach is more likely to be a market friend than a foe, even if it doesn’t always feel that way. If nothing else, it is worth noting that the S&P 500 closed at 6,051 on the day that Trump rang the opening bell at the New York Stock Exchange for the first time in his life. By doing so, he may have set his own put strike price.