Betting on the ‘Trump Trade’ To Make the Capital Markets Great Again

Skadden’s 2025 Insights

P. Michelle Gasaway

Key Points

  • The capital markets reacted enthusiastically to the end of election uncertainty, and expectations of lower taxes, less regulation and more business-friendly policies.
  • Record-setting equity markets are expected to finally open the IPO window for companies that have been waiting to go public.
  • Strong corporate fundamentals remain positives for both investment-grade and high-yield bonds, so long as deficits and inflation do not cause interest rates to rise again.
  • A resurgent M&A market, spurred in part by an expected shift in approach in antitrust regulation, would further increase deal flow in both the traditional capital markets and private capital.
  • If bank regulations are liberalized, traditional lenders could compete more broadly and aggressively for business that has been going to private capital sources.


The capital markets responded immediately and enthusiastically to Donald Trump’s victory in the 2024 presidential election, and to Republican control of both chambers of Congress.

On the day after the election, the Dow Jones Industrial Average rose over 1,500 points, the first single-day gain of 1,000 points since November 2022. The S&P 500 increased nearly 3%, its best day in almost two years, and the Nasdaq Composite posted a similar increase.

The equity market’s gains celebrated the removal of election uncertainty and reflected market participants’ expectations of an era of lower taxes, less regulation and more business-friendly policies — factors that should help boost corporate earnings and profits, a strong positive for the markets.

The bond market also reacted strongly to the news, but less optimistically. Treasury prices fell and yields significantly increased in anticipation of stronger economic growth, but also because of the potential for increased budget deficits and inflation due to lower tax revenues and the impact of tariffs on prices.

Overall, the markets are betting on increased growth, less red tape and more deals under the Trump administration. 

There also are unknowns about the implementation of President-elect Trump’s fiscal policies, including the scale of the tariffs and tax cuts he has promised, and the impact of the proposed tightening of immigration policy. (See “Decoding Tariff Threats: What Importers Can Expect on Day 1 and Beyond” and Possible Tax Reforms Could Run Up Against Deficit and Debt Concerns.”)

But, overall, the markets are betting on increased growth, less red tape and more deals under the Trump administration. The capital markets also are expecting to benefit from a less aggressive Securities and Exchange Commission (SEC), whose chair, Gary Gensler, will step down on Inauguration Day. (See “A Significant Shift Away From ESG and Toward Crypto Is Expected at the SEC.”)

IPO and Equity Markets

With election uncertainty out of the way, companies considering or preparing for initial public offerings (IPOs) or pre-IPO investment rounds can move forward with greater clarity. Market uncertainty and volatility, combined with lower or misaligned valuations, kept many pre-IPO companies waiting on the sidelines for the last few years. In addition, lingering questions about what the Federal Reserve would do with interest rates have now been answered, with the Fed announcing its final 2024 rate cut in mid-December and indicating that it plans to slow future rate reductions.

Technology companies, in particular, are an area of focus, with the stock prices of several big public tech companies posting substantial post-election increases and the news of President-elect Trump’s selection of tech billionaire Elon Musk to co-lead the advisory Department of Government Efficiency (DOGE). However, the tech sector is expected to face headwinds from the Trump administration’s anticipated continued scrutiny of Big Tech’s competitive landscape, together with proposed tariffs and other trade policies.

Companies will still need to show strong fundamentals, including a path to profitability and sustainable growth, and be realistic as to valuations. As a result, some “unicorns” may choose to remain private as they continue to refine their story, particularly if they have generous later-stage funding and their private investors are not looking for a near-term exit.

In addition, the actual implementation and execution of President-elect Trump’s policies could result in market volatility, depending on scope, details and geopolitical reactions. But with strong overall market performance, the IPO window of opportunity appears more positive than it has in several years.

Bond Markets

Companies looking to the bond markets should remain vigilant and opportunistic. Strong pre-tax corporate profits and solid balance sheets (with less debt and more cash), together with the decisive election results, are a positive for both the investment-grade and high-yield bond markets, but interest rates and inflation continue to be top of mind.

The Federal Reserve reduced interest rates by a full percentage point in 2024 and indicated a plan to slow future rate cuts, with only two expected in 2025. However, in the long run, the focus will be less on the recent Fed rate cuts and more on economic data and inflation trends. Inflation still remains above the Fed’s 2% goal, but the Fed also is anticipating effects from Trump administration policy changes.

Tax cuts that lead to increased consumer and business spending, combined with the impact of tariffs and immigration policies, could cause prices to rise and, as a result, lead to interest rates remaining static or even increasing again if there is rising inflation. The result could be investors demanding higher yields, particularly on longer-term bonds.

Private Capital

Interest rates, tariffs and regulation also are areas of focus for private credit and other private capital. Higher interest rates make financings more expensive, which could temper the expected deal activity in the M&A market.

However, against the backdrop of an otherwise favorable M&A environment and with many sponsors and investors looking for exits after years of low M&A and IPO activity, market participants may decide to just accept the new normal of higher rates and move forward with their transactions.

Private capital firms also have the potential to benefit from a less stringent approach to regulation, including possibly fewer restrictions on the ability to attract retail investors to private capital funds. Companies seeking capital could also see benefits, particularly if the Trump administration eases capital requirements, leveraged lending guidelines and other restrictions on traditional banks.

With more flexibility to participate in financings that previously may not have been permitted under these restrictions, traditional banks could compete more aggressively with private capital in a broader range of transactions. (See “Trump 2.0 Could Mean a More Bank- and Fintech-Friendly Environment.”)

M&A Activity

More M&A activity would increase deal flow in the capital markets, as many acquisitions require some type of debt or equity financing. In addition, an active deal market provides sponsors and investors with more certainty of an exit and liquidity, which has a positive impact on the willingness of sponsors and investors to participate in the broader capital markets.

Notwithstanding the uncertainty around interest rates, the Trump administration’s pro-business approach is expected to increase dealmaking in many sectors, including oil and gas, digital currencies, industrials, financial services, artificial intelligence/technology and health care/life sciences. (See “Resilient Economy and Promises of Lessened Regulation, Lower Taxes Raise Hopes for a Surge in M&A.”)

Some market participants have already begun revisiting transactions that might not have passed regulatory scrutiny under the Biden administration, in anticipation of a more flexible stance by the Trump administration. (See “Keep Your Seatbelts Fastened: The Wild Antitrust Ride May Not Be Over.”)

In Sum

The ultimate impact of the Trump administration’s policies on the capital markets will depend on when and how they are implemented. The policies’ details, timing, sequencing and scale remain open questions, as do the potential geopolitical responses to them.

The capital markets thrive on certainty, predictability and lack of volatility, and participants are opportunistic. The key will be how well the expectations of the pro-business “Trump trade” match the reality.

See the full 2025 Insights publication

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

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