Mar 21, 2025
For much of last year, President Donald Trump promised “extraordinary” economic benefits from his policies and “the brightest economic future the world has ever seen” for the country. But just weeks into his second term, the administration is asking Americans to brace for an economic dip instead.
In a recent interview on CNBC’s Squawk Box, Treasury Secretary Scott Bessent warned that the ongoing efforts to cut back government spending would negatively impact the economy. “The market and the economy have become hooked, become addicted, to excessive government spending and there’s going to be a detox period,” he said.
The impact of the ‘detox period’ may already be unfolding
At the end of 2024, government expenditures as a percentage of gross domestic product was 34%.
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However, despite the efforts of Elon Musk to cut costs via the so-called Department of Government Efficiency, there is little evidence that government spending has been reigned in. The budget deficit hit $307 billion for the month of February, 2.5 times larger than the deficit in January and 3.7% higher than February 2024, according to the Treasury Department.
A recent bill signed by President Trump provides funding for federal agencies to the tune of $1.7 trillion for the current fiscal year, with minor cuts to non-defense spending and a minor boost to defense spending. In other words, the government is still on track to spend a huge amount of money.
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Meanwhile, the economy and capital markets seem to be tumbling already. The S&P 500 has lost roughly $5 trillion in value in just three weeks, according to CNBC, and the University of Michigan’s index of consumer sentiment is on track to drop 10.5% from February to March alone.
Such drops are suggesting the only thing this “detox” is eliminating is economic optimism. Here are three ways you can prepare your portfolio for the ongoing fallout.
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Gold
In times of uncertainty and volatility, investors often consider gold to be a safe haven. The precious metal has certainly lived up to its reputation in recent months. Each ounce now trades for just over $3,000, up 16% over the past six months. By contrast, over that same period, the S&P 500 is up just 1%.
Adding a little gold exposure to your portfolio could help insulate your wealth. Exchange-traded funds such as SPDR Gold Shares (GLD) or iShares Gold Trust (IAU) track the price of physical gold and are, perhaps, the most convenient option for retail investors.
Inflation-linked treasuries
While consumer confidence is dropping, expectations of inflation are rising. Consumers surveyed by the University of Michigan said they expect 4.9% inflation in the year ahead, while their long-term inflation expectations have jumped from 3.5% to 3.9%, the highest level in 32 years.
Luckily, the government offers Treasury Inflation Protected Securities, or TIPS, which are designed to protect investors against inflation. For investors worried about the cost-of-living or those living on fixed income, these special treasuries could offer a safe place to park cash.
Defensive stocks
Some sectors of the economy are relatively immune to shocks. During times of upheaval, these defensive stocks could be a little more resistant to losses in value.
For instance, pharmaceutical giant Eli Lilly & Co (LLY) is up 6% year-to-date while Waste Management (WM) is up 12%. Both of these defensive stocks have outperformed the S&P 500, which has lost roughly 4.5% of its value over the same period.
Adding some exposure to these mundane but durable stocks could bolster your portfolio while the economy faces turbulence.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
