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Who will benefit from deregulation?

June 12, 2025 | 6 min read
Christian Floro, CFA, CMT
Market Strategist
Kiara Cao
Analyst, Multi-Asset Research
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At a time when the U.S. economy is grappling with rising trade barriers and policy uncertainty, one area of renewed momentum may offer a counterweight: deregulation. While early moves by the Trump administration in its second term—particularly around trade and government restructuring—have unsettled markets and weighed on growth expectations, the policy agenda appears to be shifting. Investors frustrated by the initial sequencing of growth-damaging measures may now find relief as more pro-growth initiatives begin to take shape.

Among these, deregulation stands out. It played a central role during Trump’s first term, when the administration succeeded in curbing the growth of new regulatory costs to levels not seen in decades. When combined with the 2017 tax cuts, that deregulatory push delivered an estimated $1.5 trillion boost to the U.S. economy. A similar strategy today—particularly if paired with an extension of those earlier tax cuts—could help restore business confidence and revive capital expenditure plans delayed by trade tensions and broader policy uncertainty.

The deregulatory framework

While there is still uncertainty around how the Trump administration will pursue its deregulatory agenda—whether primarily through executive action or existing legal mechanisms—the Congressional Review Act (CRA) offers an early window into its priorities.

The CRA, a tool the administration used extensively in its first term, allows Congress to overturn recently finalized regulations with a simple majority vote. Under the law, agencies must submit new rules to Congress, creating a formal list of regulations eligible for review.

For investors, this list serves as a useful guide. It offers a relatively comprehensive snapshot of which sectors may be most affected by regulatory rollbacks. By tracking which regulations are being flagged for CRA review, market participants can better anticipate the administration’s focus areas—and where the most impactful deregulatory efforts may be headed.

Key impacted sectors

Among the roughly 80 regulations submitted through the CRA for review, the bulk of these rules are related to energy and the environment, followed by financials and healthcare.

Sectors that stand to potentially benefit the most are traditional energy, industrials, and financials. Relaxing or repealing restrictions on oil & gas drilling and extraction, together with a reduction of compliance costs, is likely to help traditional energy companies and industrial firms focused on capital goods. Meanwhile, an easing of financial regulations, including lower capital or liquidity requirements, or a relaxation of M&A regulations, is likely to boost profitability within the financial sector.

On the other hand, sectors that may be most negatively impacted could be healthcare and industries associated with the environment. Changes to public healthcare subsidies related to either Medicaid or Medicare could negatively impact patient demand, weighing on hospital spending. Meanwhile, cuts to regulations governing clean energy are likely to weigh on the growth of renewable energy, impacting investment and innovation. A loosening of environmental standards for companies is also likely to result in lower demand for anti-pollution chemicals, which is unfavorable for chemical manufacturers.

While the timing and ultimate avenue in which the deregulation agenda progresses is still up for debate, the overall direction is relatively straightforward: This administration is focused on rolling back excessive regulation, with a focus on select sectors. While it may lead to some negative spillovers to specific industries, growth-friendly policies are likely to come into focus for the traditional energy, industrial, and financial sectors.

Style and capitalization impacts

Value vs. Growth: Leveraging company-by-company analysis, both Value and Growth styles are likely to benefit from the deregulatory push. However, though there are compositional differences depending on the index used.

The share of stocks identified as being impacted the most by deregulation is similar across both the S&P 500 Value and Growth indices, making up approximately 8% of either index. On the other hand, across Russell indices, deregulation exposure is skewed towards Value, with 13.5% of stocks in the Russell 1000 Value index likely to benefit from the deregulatory push versus only 3% in the equivalent Growth index. However, the differences in index classification largely explain the divergence in relative exposure between the S&P and Russell indices, as some industrial stocks—which are poised to benefit from deregulation—are classified as Growth in the S&P but as Value in the Russell.

Large-cap vs. Small-cap: Utilizing a top-down approach given limited bottom-up small-cap company coverage, findings show that small-cap companies are likely to benefit more from deregulation than large-cap firms. Looking at various sentiment measures, the initial rise in business confidence immediately after the 2024 elections was more pronounced for smaller firms compared to larger firms. This was similar to Trump’s first term, where the surge in NFIB Small Business Optimism Index at the start of 2016 outperformed the CEO Confidence Index. While there has been a decline in sentiment across both measures recently, likely amid a rise in trade uncertainty and potential disappointment that the deregulatory agenda is materializing slower than expected, declines in small business confidence remain more muted compared to the broader market. This likely represents the hope that the deregulatory agenda will eventually materialize, helping support the relative reliance of smaller firms, at least for now.

In terms of profitability, small-cap companies are also likely to enjoy higher margin improvement from regulatory cost savings than large-cap. This is according to data from the National Association of Manufacturers, which indicates that the regulatory compliance costs per employee per year for small companies are 20% higher than those for large companies.

Deregulation trade still has room to run

Markets appear to have not yet fully priced in the anticipated effects of deregulation, as reflected in the performance of both sector-level indices and individual stocks expected to benefit. A basket of sectors likely to gain the most—such as energy, financials, and capital goods industrials—continues to trail the relative highs reached in the aftermath of Trump’s election victory last November. The same holds true at the stock level: a group of companies positioned to benefit from deregulation has also underperformed the broader market compared to its initial post-election surge. While many factors influence price performance, these patterns suggest that the deregulation trade remains incomplete.

Among large-cap style indices, the Russell 1000 Value Index appears most sensitive to the deregulation theme and stands to gain the most as additional deregulatory policies are implemented. At the same time, small-cap stocks may benefit even more than large-caps, particularly through improved business confidence and profitability. That said, caution is warranted—index performance will continue to be shaped by a range of other influences, including macroeconomic conditions, liquidity dynamics, and idiosyncratic risks.

Implications for investors

For investors, the slower-than-expected rollout of the Trump administration’s deregulatory agenda has created both uncertainty and opportunity. Early actions—particularly those using the Congressional Review Act—suggest that deregulation will be concentrated in specific sectors, including energy, environment, financials, and healthcare. While the effects will vary across industries, the overall market impact is still likely to be positive. Importantly, markets have yet to fully price in the potential benefits, creating room for upside in select areas for investors positioned ahead of policy implementation.
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