Scott Bessent’s designation this week as President-elect Donald Trump’s nominee for secretary of the treasury has so far gained the favor of investors, following lengthy deliberations over who could be nominated to the role that will be influential for markets and the economy.
Bessent, a former partner in and CIO of Soros Fund Management and the founder of hedge fund Key Square Group LP, has signaled that he sees growth coming through deregulation and increased energy production, while also aiming to cut the national deficit to 3% of GDP. He has also noted that tariffs are a good negotiating tactic, one Trump seems to be employing already, having said this week he will impose tariffs on Canada, China and Mexico.
Bessent’s presumed nomination got market cheers on Monday after the announcement, broadly driving up the stock market.
“Bessent has been dubbed a ‘fiscal hawk’ as someone who can navigate a broad cross-section of global asset classes and the implications of the crosscurrents underpinning them,” Quincy Krosby, chief global strategist for LPL Financial, said in a statement. “Moreover, markets are surmising that Bessent will help steer the incoming administration’s policies towards a pro-growth posture, but without the ramifications of inflationary consequences.”
Meanwhile, top hedge fund and asset managers chimed in with support.
Bessent, who cannot be nominated or approved by the Senate until Trump takes office on January 20, will be tasked with working through Trump’s tariff plans, even as the Federal Reserve has just this year started to tame inflation. Meanwhile, he will probably be seeking to make deficit cuts, as Trump’s administration and a Republican-led Congress are likely to try and maintain tax cuts currently scheduled to sunset in 2025.
3-3-3
Bessent, for his part, has proposed a “3-3-3” plan: cutting the deficit to 3% of the GDP by 2028, achieving 3% GDP growth and increasing oil output to 3 million barrels per day. Bessent sees that GDP growth as being driven by deregulation and tax cuts.
“Scott will support my policies that will drive U.S. competitiveness, and stop unfair trade imbalances, work to create an economy that places growth at the forefront, especially through our coming world energy dominance,” Trump posted on social media on November 22 in announcing Bessent as his presumptive nominee.
In an earlier interview with CNBC on November 6, Bessent said getting energy prices down and deregulation would both be disinflationary; lowering inflation would be a key part of Bessent’s 3-3-3 plan.
“These policies blend fiscal conservatism with growth-oriented measures,” says Drayton D’Silva, CEO and CIO of Tower Hills Capital. “Institutional investors must monitor how spending cuts or tax changes impact their investments in sectors like healthcare and infrastructure that rely heavily on government funding.”
Tariffs and Trade
The incoming administration has been clear about its intent to use tariffs, primarily to draw concessions from some of the U.S.’s largest trade partners. On Monday, Trump proposed a 25% tariff on products coming in from Mexico and Canada, a tariff that would remain in effect until those countries no longer allow “drugs, in particular fentanyl, and all illegal aliens” into the U.S.
Trump also proposed an additional 10% tariff on all products from China. The S&P 500 and other indices sold off shortly after Trump’s comments but recovered in Tuesday’s pre-market. Investors and analysts have noted that Trump’s threat of tariffs is a negotiation tool to gain concessions from other countries. In the past, Trump had proposed a 60% tariff on China and a 10% global tariff.
In a September press briefing, Meghan Robson, head of U.S. credit strategy at BNP Paribas, said that investors and clients note that Trump sees stock market performance as a barometer for success and would likely implement less “extreme” policies if markets did not approve of tariff policy; the bank had modeled, in a “worse-case scenario,” a 4% increase in inflation within a one-year period of a 10% global tariff and a 60% China tariff being implemented.
Bessent has said he believes tariffs can be used in a way that will mute their impact on inflation. In a recent CNBC interview, Bessent said he would like to see tariffs implemented gradually, noting that “the price adjustment would be over a period of time” and that a gradual tariff implemented with other disinflationary policies would keep inflation below the 2% target.
“Bessent’s nuanced use of tariffs as negotiating tools will reshape global trade relationships,” D’Silva says. “His advocacy for a ‘fair-trade bloc’ among allies will create opportunities for investors in these allies’ economies such as Japan, Australia and India, while increasing risks for emerging markets reliant on U.S. exports and for countries with lopsided trade flows or non-reciprocal trade agreements, because the U.S. wants to rebalance global trade relationships in its favor.”
What Bessent’s Appointment Means for Allocators
For asset owners, D’Silva says the key strategic allocation under Bessent should be increased exposure to U.S.-focused investments, while hedging against risks from global trade disputes and currency volatility.
“Scott Bessent’s appointment has reassured markets that fiscal discipline and pragmatic policymaking will prevail,” he says. “The rally in U.S. Treasurys following his nomination underscores investor confidence in his ability to manage deficits responsibly.”
Meanwhile, D’Silva notes that the combination of trade agreements—the carrot—and targeted tariffs—the stick—will create opportunities for sectors including manufacturing, energy and technology, while accelerating re-shoring and near-shoring trends in supply chains.
“Asset allocators should prepare for significant shifts in trade flows, particularly involving China,” he says.
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Tags: Drayton D’Silva, Quincy Krosby, Scott Bessent, Secretary of the Treasury