Following Donald Trump's reelection as U.S. president on November 5, reactions within the diamond and jewelry sector were diverse. Some celebrated with animated GIFs, while others criticized him, showing how divided the industry is regarding his leadership.
But will a Trump presidency benefit the diamond market? It boils down to a few key questions: Will consumers see an increase in spending power, and will that translate into a boost for diamond sales?
Since the election, the S&P 500 index has climbed approximately 5%, suggesting that investors expect the new administration’s policies to favor market growth.
Trump, set to begin his term on January 20, 2025, has vowed to make permanent the Tax Cuts and Jobs Act provisions, which previously reduced taxes for both businesses and individuals when introduced in 2018. Many of these provisions are set to expire in 2025.
More Spending Power for Consumers?
With a rising stock market and a stronger dollar, some experts are predicting a trickle-down effect. "I expect the Trump administration will pursue pro-business, growth-oriented, low-tax policies, which could lead to increased wealth for all consumers," said Milton Pedraza, CEO of The Luxury Institute. "This would ultimately benefit the diamond and jewelry industries."
However, the relationship between tax cuts and economic growth is not straightforward. While tax cuts should, in theory, give consumers more disposable income and make public companies more profitable, there is no clear correlation between Republican administrations and positive stock market returns, as shown by a 2021 Forbes report.
Moreover, stock market performance doesn't always align with diamond prices. The RapNet Diamond Index (RAPI™) for 1-carat polished diamonds dropped by 53% between January 1, 2013, and November 1, 2024, while the S&P 500 surged by 302% during the same period, highlighting a disconnect between the two.
Major geopolitical events often have a greater impact on the economy and jewelry demand than specific policies—such as the effects of the Covid-19 pandemic and the Russia-Ukraine conflict.
Dave Marcotte, senior vice president of global research at Kantar Consulting, noted that wealth from tax cuts often ends up being saved rather than spent. "After the last significant tax cut, we didn't see much of a trickle-down effect, as much of the wealth was simply stored rather than invested," Marcotte explained. He added that a more substantial benefit could be seen if tax cuts extended deeper into lower-income groups.
For now, upper-income tax cuts are likely to have short-term benefits for jewelers.
Trump has also promised to reduce inflation and interest rates, potentially putting more disposable income in consumers' pockets. The ability to influence interest rates depends on how independently the Federal Reserve—responsible for setting rates—can operate. On November 7, just before the election, the Federal Reserve reduced interest rates. Fed chair James Powell emphasized that the election would not influence short-term rate decisions.
Tariffs and Immigration Policies
Trump's stance on tariffs could trigger a new trade conflict. The tariff war with China, which began in 2018, indirectly impacted the diamond industry by reducing Chinese consumer wealth, leading to lower demand for diamonds.
Fresh tariffs under Trump's administration could further decrease consumer spending power, with the National Retail Federation (NRF) estimating losses between $46 million and $78 billion annually.
Nevertheless, Milton Pedraza remains hopeful, saying, "I believe that when the administration assesses the inflationary consequences of tariffs, they will likely reconsider imposing additional taxes on consumers."
Pamela Danziger, a U.S. consumer commentator, echoed this sentiment. "Trump campaigned on a promise to tackle inflation and make America affordable again," she noted, expressing optimism that new tariffs might be avoided.
Immigration policies are another area of potential impact. Trump's strict stance on borders has reignited debate around the economic value of immigration. For companies like Signet Jewelers, Hispanic Americans are an essential consumer base, and restrictions on immigration could present challenges.
Looking Beyond Politics
While Trump's reelection comes with possible advantages and risks, the industry might benefit from focusing on its core strategies, especially as the holiday season approaches. David Bonaparte, president and CEO of Jewelers of America (JA), said, "Many U.S. consumers are likely relieved that the election cycle has ended. Now the industry can concentrate on driving business during the critical holiday period."