Capital markets are impacted by many complex factors. Some of these include interest rates affected by central bank policy, economic indicators such as employment, fiscal policy, geopolitical events in the U.S. and abroad, and company-specific performance. Each of these contributes to the daily fluctuations in equity, bond, and currency exchanges.
With a new presidency looming ahead in the United States. C-Suite officers, from CEOs to CFOs and Controllers, will be navigating through a wide range of political and regulatory changes. Sweeping policy and regulatory changes could be expected if campaign promises become actual. From talk of tariffs to the future of the Federal Reserve, we should expect to be inundated with change. These changes can potentially be a very positive catalyst for many organizations. As a direct lender, we stay on top of all issues that impact our clients and their access to equipment capital, regardless of political affiliation.
Here are just five key suggestions for officers to ready themselves for a new administration while examining economic patterns.
1. Prepare for Lower Energy Costs
- Anticipated Policy Changes: The Trump administration has put a focus on achieving energy independence and reducing regulations in the fossil fuel sector, which could potentially result in decreased energy costs.
- Recommendation: CFOs should consider securing energy contracts at reduced prices to benefit from savings on costs associated with energy usage in the long run. The decrease in energy expenses could lead to streamlining manufacturing operations, cutting costs, and boosting cash flow.
- Opportunities: For energy-intensive industries, such as manufacturing and production-related operations, lower energy costs may lead to increased productivity with additional shifts and production line expansion. Begin to consider how energy savings can be redirected into other strategic initiatives, such as upgrading facilities, expanding production capacity, or upgrading the production infrastructure.
2. Expanded Domestic Manufacturing and Focus on US Concepts
- Anticipated Policy: It is predicted that, under a Trump administration, there will be a push for reshoring efforts to bring back manufacturing to the United States by offering tax incentives or imposing tariffs on imported products.
- Recommendation: CFOs should explore the possibility of expanding production facilities or bringing back some operations to the country’s shores, as this move could match policy adjustments and bolster supply chain strength.
- Opportunities: Investment in facilities in the United States could prove advantageous for companies due to tax incentives. Lowered tariffs and the opportunity to leverage “Made in America” branding that resonates with specific customer demographics. CFOs must carefully consider the expenses and advantages of relocating operations back to the US by considering factors such as labor costs and logistics and supply chain management enhancements.
3. Prepare for Leveling and Slight Decline of Interest Rates
- Anticipated Policy: Under a Trump administration, public discord between the White House and the Federal Reserve could exist. The Trump administration will advocate for measures to maintain or lower interest rates to spur expansion. They have already made their intentions known relating to a Fed Chairman who has stated he will not resign if requested. This uncertainty could result in some market volatility for both the equity and bond markets.
- Recommendation: CFOs should examine their debt holdings and consider refinancing any high-interest debts they have on the books to secure interest rates. This can help boost cash flow and cut down on debt-related expenses.
- Opportunities: If reduced borrowing costs can be achieved, companies will have a compelling opportunity to explore growth strategies or investment plans that were previously postponed. Technology and equipment upgrades, strategic acquisitions or expansion plans can all be back on the decision-making table.
4. Anticipate Loosening of Regulations
- Anticipated Policy: The Trump administration is expected to probably uphold the trend of reducing regulations in finance, energy, and healthcare industries. Reduced Fed oversight and regulations may also lead to a season of mergers and acquisitions.
- Recommendation: CFOs are advised to keep themselves updated on any changes in regulations that impact their industry and seek out opportunities where compliance expenses could be minimized, which may lead to decreased costs and fewer delays associated with compliance requirements.
- Opportunities: Ways to seize opportunities include freeing up resources once spent on compliance due to deregulation, which CFOs could allocate towards innovation or expanding markets, and developing business models or revenue streams in regulated sectors previously deemed too expensive or risky under stricter regulations.
5. Plan for Lower Transportation Costs
- Anticipated Policy: Enhancements to infrastructure and deregulation in the transportation sector are expected to be focuses that may lead to logistics expenses for businesses.
- Recommendation: CFOs are advised to review their logistics plans and explore ways to enhance their supply chains for cost savings in transportation.
- Opportunities: Businesses can use transportation costs to broaden their distribution networks or lower product prices, improving competitiveness significantly. Moreover, improving the supply chain can lead to better lead times, better customer satisfaction, and a boost in market share.
Action Now Will Position Your Company for a Season of Opportunity
Being proactive enables CFOs to prepare their organizations for changes and tactically take advantage of them. Strategic planning today in these areas will help companies adapt to expected shifts and embrace new opportunities emerging in a Trump presidency.
