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While broadly similar to the “Trump trade” of 2016 (stocks up, dollar up), the impact of Trump 2 is extensive and includes growing optimism when it comes to geopolitical hotspots (e.g. Ukraine conflict), but also uncertainty around the magnitude and pace of US monetary policy (US interest rate outlook).

US equity markets reacted positively with the S&P 500 having its best week in 2024 and reaching new all-time highs above 6000 in the following days. Small cap stock (Russell 2000) gained even more and were up 8.6% before correcting. Within equities, the “Trump trade” favored sectors like financials that benefit from the outlook for less regulation, as well as small- and mid-caps due to the outlook for measures to boost the US manufacturing sector. Some sectors suffered losses such as like Solar & Renewable Energy paying the price of the uncertainty surrounding the commitment of Trump 2 to the Inflation Reduction Act. �۶���Ƶ's Solar Energy basket has fallen 20% since the US election while the conventional Energy basket has rallied 10%. A thematic �۶���Ƶ basket of companies that would suffer from less government spending (’DOGE Risk’ basket that includes e.g. government contractors) declined 7% since announcement of DOGE.

Bond markets reacted negatively to election results with a continuation of the upward trend in yields started after the September Fed meeting. US 10-year yield touched 4.5%, almost 1% more that the bottom of 3.6% touched at the end of the summer. With Trump’s announced policies on migration, trade (tariffs) and tax cuts – all policies that are perceived as inflationary - the Fed is expected to slow down the monetary policy easing and investors demand for higher term premia in UST market.

USD strengthened with the dollar index gaining over 4 points to reach the highest level in a year at above 107. The strength of the USD is supported by higher interest rates and stronger growth expectations under Trump 2. But a strong USD also crates headwinds for emerging markets in addition to the negative impact of US tariff that hits these economies disproportionally.

Gold prices corrected sharply after the election, in line with other commodities such as oil prices. Oil prices continued their downward trend with the “drill baby, drill” policy promised by Trump giving further impetus to supply/demand imbalances in global oil markets. The drop in gold price was unexpected but probably due after the run of the last few months. Gold has been impacted by the removal of the contested/unclear US election scenario and rising expectations of a quick end to the Ukraine conflict under Trump 2. Whether the inverse relationship between real rates and gold is back remains to be seen.

Cryptocurrencies has also risen sharply as Trump 2 is expected to favor more friendly regulations for the crypto industry.

Trump 2 will take over an economy that is in a good shape. Growth has slowed down but the likelihood of a recession has fallen. Unemployment remains low by historical standards and labour markets have now “normalized” after the Covid-related distortions. Inflation remain slightly above target but has fallen enough to allow the FED to ease and bring real rates in a more neutral position. The AI revolution is in full swing and its impact on productivity could become visible as the adoption of AI/digital technologies spread across the corporate sector. Equity and other risky assets would do well in such a scenario. But what are the risks?

On the fiscal side, extending the tax cuts will costs nearly USD 5 trillion, creating a big hurdle for any added ('real') stimulus. This is considered as positive for growth but we should consider that this will not translate into additional future demand as it is just a prolongation of the current status quo. Tariff revenues will be highly sensitive to the level of the tariff against China (almost certain given the partisan support for such a political move) and how much global demand falls in response to it. The overall impact of the announced tariff measures will be negative and significant but its impact will be different across regions and countries.

The announced curb in immigration could lead to a possible reduction in population growth by ½ pp relative to the peak in 2023. This could slow future GDP growth. However, there is still a lot of uncertainty about the announced deportation and the magnitude of this piece of policy. Private sector opposes a strong cuts in immigration flows as this could lead to damaging labor shortage. International experience also shows that anti-immigration politics help to win the elections but rarely translate into significant drops in immigration flows.

A second Trump presidency is associated with significantly less regulation, and this is perceived as more market friendly. Deregulation in the oil and energy sector plus more efficiency in the government will lead to more growth. On the energy transition, the question of the repeal of the Inflation Act is on the table but could be very controversial.

See as well as �۶���Ƶ AM’s analysis of the different election scenarios in the latest Macro Monthly.

In summary, the primary upside of the “red sweep” comes from the combination of deregulation and tax cuts, which together could unleash animal spirits in the US, but increased tariffs and the risk of sharply higher bond yields (from deficit expansion and potential inflationary consequences of tariffs) may outlook.

At macro level, the main risk is that too much fiscal loosening leads to stronger growth and inflation starts rising again in 2025. In such a scenario, the FED would be forced to arrest monetary policy easing or even revert it should inflation start rising again. The probability of an escalation between the FED and the Presidency is high with investors potentially loosening confidence in the ability of the FED to control inflation.

Link: (see table below).

However, the forecasts should be read in conjunction with the alternative tables published as part of the election outlook which outlines different economic scenarios depending on the outcome of the elections. (page 3-4).

In fixed income, yields have increased in the aftermath of the elections on expectation of higher debt under Trump 2. The increase in yields has probably gone too far and offers a chance for investors to lock in attractive yields as the easing cycle continues. However, a key issue for fixed income investors is where US 10-y rate will land in Trump 2. The rise in long-term yields started when Trump was not yet the favorite in the polls and reflects the more prudent monetary policy stance taken by the FED in recent meetings. The US economy slowed down but remains strong, inflation is down but still above target and Trump 2 is probably perceived as inflationary.

From an asset allocation perspective, Fixed Income remains attractive post US election. Inflation is still broadly moving towards central bank targets, and most central banks should remain on a policy rate normalization path which in the medium- to long-term will remain a tailwind for bond returns. Growth ex US is expected to remain slow which should keep central banks around the world (ex Japan) on an easing path.

Currently, we prefer Eurozone to US debt on slower growth, potential for trade tariffs and more visibility on policy path. In the US we prefer short to intermediate maturities and curve steepening positions given strong possibility of fiscal impulse from Trump policies and US borrowing. The rates situation in Europe is further complicated by the collapse of the German coalition government.

We still like EM HY dollar denominated sovereigns and EM HY dollar denominated corporate debt including Asian corporates (e.g., select Greater China HY credits and defaulted China real estate names) and Asia HY with an emphasis on China HY. These have been the best performers in EM/Asia over the last year despite high rates and treasury volatility and we think they will continue to perform well going forward. They are less impacted by US policies (tariffs) as they are either idiosyncratic stories and/or commodity exporters. Even if Trump announces more tariffs on China, the direct fundamental impact on Greater China credit will be very limited as most Greater China USD bond issuers don’t have export businesses.

What is more certain is that post-US elections we have experienced an increase in divergency across markets and countries. Whilst the FED might slow down the pace of monetary policy easing as Trump 2 policies get into traction the ECB will continue to ease as the European economy slows down more and remains more exposed than other to US tariffs. The Chinese central bank remains in easing mode to support the economy and the Yuan whilst the Japanese central banks may continue the “normalization” of monetary policy.

This provides great opportunities for investors in terms of flexible and dynamic fixed income investment strategies which have been on the rise already in 2024. Duration management across markets and regions is going to be a winning strategy in 2025 and reserve managers are gradually shifting to a more active management of their huge fixed income portfolios.

In equity markets, party affiliation of US presidents has historically not influenced markets and the outcome of US elections has had little impact on long-term investors. Also, geopolitics rarely have a lasting impact on markets []. With bull markets typically ending due to recession, inflation or market euphoria the Trump rally is likely to continue into 2025. The key questions are how tariffs and deregulation will impact countries and sectors across equity markets and if the outperformance of tech stocks will continue under Trump.

On tariffs, the question is whether they are a negotiating tactic with the largest trading partners (China, Europe, Mexico, Canada) or turn out to be permanent protectionist measures. Parts of new tariffs are expected to be absorbed by companies, impacting margins.  But the full scale of the impact of tariffs on the economy might take longer to play out.   We remain cautious on companies that import goods from overseas, particularly in the autos space. On the other hand, the extension of (or even introduction of new) tax cuts should support US growth via additional consumer spending and would support corporate profits. While lower taxes help across the board, financials and telecoms/media should benefit slightly more from a sectoral perspective. Further deregulation should help banks, tech, health insurances and domestic industries like Oil & Gas, mining and  manufacturing. It would also help small- and medium-sized businesses, and could finally lead to a meaning and lasting rotation away from megacaps into the broader “S&P 493”.

Relative interest rate differentials are expected to continue moving in favor of the USD, which should be a drag in particular on the EUR. Increased dovishness from the SNB and an expensive valuation should weigh on the CHF. In EM, the picture is split between winners and losers, with our experts being bullish on the BRL and ZAR on carry, while underweighting Asia ex Japan currencies on tariff risk. 

We are recommending long USD positions against the CNY and EUR as hedge against tariff risks [link]. However, the US dollar is expected to soften over the medium-term as the overvaluation and the US’s significant twin fiscal and current account deficits are likely to weigh on the currency over time. Investors should therefore consider using ongoing dollar strength to diversify into other G10 currencies over the medium-term.

One factor that could impact the appetite for the USD and USD-denominated bonds is whether Trump 2 will further broaden the use of the USD for geopolitical aims, the so-called weaponization of the USD. The use of US’s sanctions by the US is unlikely to diminish in the future (actually Biden introduced more sanctions then Trump 1) as they have become a main feature of current geopolitical confrontations. During the campaign, Trump also made some remarks about the potential use of tariff or sanctions against countries dumping the USD for other currencies. We believe this is very unlikely; however, missteps by the US administration in an extensive use of the USD as a geopolitical tool is a risk that can no longer be neglected.

Gold prices corrected significantly after the election, with a strengthening dollar and speculative interest switching to booming cryptocurrencies as possible culprits. Gold had its worst post-US election week since 1980 when Ronald Reagan was elected [].

We believe that the weakness of gold is likely to fade. Geopolitical uncertainty should remain elevated also under Trump, and the longer-term trend of central bank gold buying driven by de-dollarization trends should continue in also in the coming year. The year-end target 2025 is USD 2900/oz.