Following Republican presidential and congressional wins, markets are providing signals on the possible impacts of President Trump’s second-term policy plans— several of which have specific implications for real assets.

First, investors are optimistic about potential tax cut extensions and deregulation under the new administration. Indeed, major stock indexes have climbed following the election results. The day after the election, the S&P 500 rose by 2.4%, the Nasdaq climbed 2.8%, and the Dow Jones Industrial Average gained 3.5%, hitting a new all-time high.

Second, markets are pricing in higher rates on expectations for higher inflation and increased borrowing. President Trump’s policies—potentially lower taxes, more protectionist trade policy, and immigration reforms—are generally viewed as inflationary. And each of these policy changes becomes more likely with the Republican Senate and House wins.

Related to higher expected rates, a post-election selloff in bonds caused the 10- year Treasury note yield to rise sharply, with nearly all the rise in 5-year interest rates attributable to higher inflation breakevens.

It’s important to note that rate expectations were already shifting leading up to the election, either on expectations for the election results, stronger-than- expected economic data, or both. Treasury yields have risen from 3.65% to more than 4.25% since the Fed rate cut in September, which is the largest post-rate-cut increase in yields since 1990.

However, the 10-year Treasury rate three days after the election was only modestly higher than the market close on the day of the election, while real rates were lower.

Rate-sensitive equity sectors, including listed REITs and utilities, declined the day after the election but have since rallied back to various degrees. At the same time, the U.S. dollar strengthened, consistent with the expectation for increased tariffs.

We believe, and the market seems to agree, that these policy changes would collectively add to trends already in place for higher inflation in coming years. That’s generally positive for real assets.

Third, President Trump’s pro–traditional energy and deregulatory policies are likely to create winners and losers in some sectors. Among real assets, the most notable sectors to watch here are infrastructure and energy, but other areas will also feel effects.

Market reaction indicates investors are expecting higher inflation, deregulation, lower taxes, and winners and losers in key sectors such as energy and infrastructure.

The immediate decline in REITs in the wake of the election result needs to be put in context.

It comes after a significant third-quarter rally that gave way to the first decline in REIT performance in six months in October. (Listed REITs generated total returns of nearly 17% in the third quarter but then declined 3.6% in October.)

While the initial move in REITs after the election was lower, this is not highly surprising. The sector has been more rate sensitive recently than over longer time periods. The rise in longer-term real rates, therefore, was a drag on returns.

Indeed, real rates are currently 46 basis points above their September lows, while listed REITs are down 5% over the same period. As could be expected, the sectors that declined the most following the election are those more sensitive to rates—towers, self storage, health care. However, year-to-date total returns for REITs are still greater than 9%.

Listed REITs are more than a play on interest rates over the medium to long term, and our outlook is still favorable.

Supply is moderating and likely to remain low. REIT valuations are attractive relative to broader equities. If lenders start to loosen tight lending standards, this could be a net positive for commercial real estate. And while inflation expectations are higher, net operating income growth is still resilient, and REIT fundamentals are healthy, as evidenced by third-quarter earnings.

REIT debt spreads tightened considerably in recent months, indicating improving lending standards. Four-quarter net operating income growth, as measured by NCREIF, remained on solid footing at 4.65% in the third quarter of 2024 (compared with a historical average of ~2.75%).

What’s more, although increases in interest rates may unsettle markets in the near term, history shows that the direction of the economy and job growth tend to have a greater impact on REIT returns than rising rates do. REITs’ characteristics can also help them serve as a buffer against inflation.

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The second Trump presidency is likely to have significant implications for listed infrastructure, given potential curtailments to the Inflation Reduction Act and President Trump’s stated support for fossil fuels over alternative energy.

The sectors we are watching are:

Utilities: A key shift will be less active support for clean energy initiatives, although we believe many components of the Inflation Reduction Act will ultimately survive due to their benefits to red states and existing Republican support. However, high federal deficits could put pressure on incentives in the IRA, to some degree.

Further, the Environmental Protection Agency is expected to take a less active role in regulation. But we expect blue states to become more involved in pursuing clean energy goals, as they did during Trump’s first term.

Freight rails: The new administration may explore lower corporate tax rates, which could particularly benefit freight rail companies, though the decrease would likely be more modest than that from the Tax Cuts and Jobs Act of President Trump’s first term. Lower taxes would benefit most firms, but we see rails as a bigger winner than other infrastructure subsectors, given they are one of the highest cash tax paying sectors.

Midstream: Overall, we expect more support for infrastructure and conventional energy projects, potentially leading to increased drilling and smoother project approvals.

Marine ports: Potential tariffs could create risks for certain ports while presenting opportunities for others. These policies could cause supply chain disruptions and exacerbate inflation, which has implications for a litany of subsectors and the economy at large.

The election result, though it has caused some near-term repricing, doesn’t alter our view that real assets are well positioned in the new market regime—one characterized by higher-trend inflation and favorable supply/demand dynamics.

There are four reasons we believe real assets are positioned well compared to other asset classes.

1. Diversification benefits: Real assets provide diversification potential to the 60/40 portfolio, reducing overall portfolio risk. They tend to perform differently from traditional equities and bonds—and this may be even more important going forward, as stocks and bonds have recently become more highly correlated.
2. Inflation mitigation: Real estate, natural resource equities, commodities and infrastructure have historically shown sensitivity to inflation. As inflation risks continue to rise, these assets can help protect purchasing power and maintain portfolio value.
3. Attractive valuations: Compared with other asset classes, real assets are currently attractively valued. This makes them a compelling investment choice, especially when traditional equities are trading at historically high valuations.
4. Economic inflection point: We are at a historical inflection point, with fracturing global supply chains, elevated geopolitical uncertainty, and higher and more volatile inflation expected. Real assets are well positioned to provide stability and growth potential under these conditions.