Will the Trump 2.0 economic ideology be more MAGA or DOGE?

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 supply-side economics (PDF). 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 other Trump put (PDF) 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 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.