Going all out with Trump 2.0

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  Serge Nussbaumer
  Chefredaktor

The Duden dictionary describes a “chamber of horrors” as an exhibition of objects or similar items that are intended to make people shudder. Since November 5, 2024, this noun has been booming in political reporting. Journalists like to refer to the potential administration of US President Donald Trump, who was elected on that day, as a “cabinet of horrors”. They are referring to the wealth of irritants that the Republican wants to entrust with important tasks in his second term of office. The list ranges from multi-billionaire and Tesla CEO Elon Musk to anti-vaccination activist and conspiracy theorist Robert F. Kennedy Jr. and fracking entrepreneur and climate change skeptic Chris Wright.

Run on Bitcoin and US equities

On Wall Street, there was initially no sign of a scare. On the contrary: investors celebrated the political comeback of the year. Not only did US shares continue their record-breaking run after election day. The result also gave cryptocurrencies a real boost. The most important representative of this asset class, Bitcoin, has increased in price by 43% since November 5, 2024. By contrast, there were long faces in Europe and the Far East in particular. While the Euro Stoxx 50 stood still, the Hang Seng, which is made up of Chinese shares, fell significantly (see chart 1).

The performance discrepancy can be reduced to a simple denominator: “America first!”. When Donald Trump is sworn in as the 47th president on January 20, this motto will apply more than ever. Not only is the 78-year-old much better prepared for his second term in office than he was for his first term from 2017, but the outcome of the congressional elections has also given him an enormous amount of power. In addition to the House of Representatives, the Republicans were able to secure a majority in the Senate. This will remain the case for at least two years. The next midterm elections will take place in November 2026. In the midterm elections, the entire House of Representatives and every third seat in the Senate will be up for vote. In short: the world is facing two years with 100% Trump.

Trade policy: tariffs, tariffs, tariffs

At the beginning of December, the future president explained his plans for more than an hour in a TV interview. “I am a big supporter of tariffs,” he said about his most important trade policy tool. The “President-elect” brushed aside the objection that new import duties could fuel inflation in the states. “Tariffs will make our country rich,” claimed Trump, who also announced rapid tax cuts. When it comes to streamlining the state, he is relying entirely on the richest man in the world. Elon Musk – together with interim presidential candidate Vivek Ramaswamy – will head the Department of Government Efficiency (DOGE). The aim of this institution is to massively reduce government spending, which recently amounted to USD 6.8 trillion. To this end, the DOGE could cut jobs on a large scale and close or merge federal agencies.

Energy policy: Drill baby, drill!

The new administration is likely to significantly relax the regulations for US oil multinationals. With the slogan “Drill baby, drill”, Donald Trump is promoting the production of as much fossil energy as possible. At the same time, the promotion of renewable energy sources is to be scaled back. It remains to be seen whether the energy sector will simply follow the White House’s lead. After all, the drilling facilities are already running at full speed. The U.S. Energy Information Administration (eia) assumes that an average of more than 13 million barrels of crude oil per day will be produced in the USA in 2024. Within a decade, the production volume would have increased by around half (see chart 2).

With the fracking boom, the USA has helped to ensure that the world has sufficient supplies of the most important energy source. This is despite the fact that OPEC+, which includes Russia and other producer countries in addition to the OPEC states, has been cutting production for years. The oil price is nevertheless weakening. At the beginning of 2025, a barrel of US WTI crude cost around USD 74, meaning that on balance the future has not moved for years. Saudi Arabia and Russia are unlikely to stand idly by while Trump creates a new oil glut and thus jeopardizes the revenues of the two largest producers after the USA.

Geopolitics: major challenges

This is all the more true as the 47th US president is dependent on Russia to achieve important geopolitical goals. Trump promises a quick end to the war in Ukraine. In an interview with NBC, however, he would not or could not even confirm a phone call with Vladimir Putin. In contrast, the next president has spoken to China’s ruler Xi Jinping. “I have a very good relationship with President Xi,” said Trump, without revealing the content of the conversation. Only this much: Taiwan or a possible attack by China on the island republic was not an issue.

Optimistic scenarios

Despite the enormous geopolitical uncertainties, optimism prevails on Wall Street. Reuters asked strategists, analysts, brokers and portfolio managers for their assessments. The answers led to an average 2025 price target of 6,500 points for the S&P 500. If the consensus is correct, the leading US index would be a good 9% higher at the end of the year than at the beginning of January. UBS was one of the most optimistic participants in the survey. Its investment experts see the leading US index reaching 6,600 points in just under 12 months. In an ideal scenario, the S&P 500 Index could even reach the 7,000 mark, according to UBS CIO GWM. However, in addition to strong growth in the US economy and a sustained boom in artificial intelligence (AI), this would require a deal on trade policy. Both in this bullish scenario, which has a probability of 25%, and in the “base case”, the experts assume further interest rate cuts.

Monetary policy: A new phase

The past year has shown just how difficult it is to predict monetary policy correctly. Twelve months ago, it was considered a foregone conclusion that the US Federal Reserve would herald a turnaround in interest rates in the spring. However, the markets actually had to wait until September before the Fed loosened the reins. Stubborn inflation caused the Federal Open Market Committee headed by Federal Reserve Chairman Jerome Powell to hesitate. Shortly before Christmas, the committee decided on the third interest rate hike in 2024 and cut the “target rate” by 25 basis points to the current range of 4.25% to 4.50%. While Donald Trump was accompanied by interest rate hikes in the initial phase of his first term in office, he is now returning to the White House during an easing cycle (see chart 3).

However, there is a lot of guesswork as to how much the Fed will support the world’s largest economy in view of the upcoming change of power. Federal Reserve Chairman Jerome Powell believes that monetary policy is in a good position. “But I think a new phase begins from here and we will be cautious about further cuts,” he said in December. If the money markets have their way, the Fed will hold its feet to the fire for the time being and not lower the key rate any further in January and March. These prospects were not well received on Wall Street – after the most recent Fed meeting, share prices fell across the board.

Winnings: With the AI to the top

When the Federal Open Market Committee makes its next decision on January 29, the reporting season will already be underway. Alongside the economy and monetary policy, corporate earnings play a key role in the stock market outlook. Here, too, Wall Street is very confident. According to Factset, analysts expect earnings per share in the S&P 500 to rise by just under 15% in the current year (see chart 4). This would be the strongest growth since 2018. In addition to the Trump euphoria, AI is a driver behind this expectation. Indeed, more and more companies are gearing up for the age of generative artificial intelligence. According to UBS calculations, Alphabet, Amazon, Microsoft and Meta alone invested USD 222 billion in this trend in 2024. In the coming year, the capital expenditure of the four “big techs” is set to increase by a further USD 45 billion. The high level of investment is making the cash registers of companies positioned along the AI value chain ring.

This does not change the lavish valuation of the US stock market. At the beginning of January, Factset estimated the price/earnings ratio (P/E ratio) for the S&P 500 Index at more than 21. By comparison, the ratio has averaged 18.1 over the past ten years, while the 20-year average is around 16. UBS CIO GWM makes no secret of the fact that US equities are more expensive than they have been for a long time. “But we believe that this valuation is justified by the healthy economic environment in the US and the high level of exposure to structural growth,” the experts write in their annual outlook.

Investment solutions

Such arguments are difficult to dismiss out of hand. In this respect, it makes sense to continue betting on Wall Street, true to the motto “The trend is your friend”. Last year, many investors added the S&P 500 to their portfolios via an ETF. Eight of the 20 exchange-traded funds that recorded the strongest inflows of funds worldwide in 2024 follow the leading US index. These include the iShares Core S&P 500 ETF. Under the ticker CSSPX the fund, which is worth almost USD 112 billion, is listed on SIX.

Before the elections, Vontobel launched the tracker certificate PRUSEV on the Republican 2024 US Election Index ahead of the elections. The private bank’s experts included potential beneficiaries of Donald Trump’s return to the levers of power in this underlying. These include the electric car manufacturer Tesla as well as the tech giants Amazon and Meta and the oil company Exxon. They are joined by financial companies, above all the major banks J.P. Morgan and Bank of America. So far, the calculation of this strategic certificate has worked. Since its issue last July, the tracker has risen in price by more than a tenth, outperforming the S&P 500 by around 6 percentage points.

The gold price rally has stalled in the wake of the US elections. However, with geopolitics more tense than ever and interest rates trending downwards, the precious metal should continue to have a firm place in portfolios. J.P. Morgan cites central banks as a further argument. They are increasingly using gold to diversify their currency reserves. In the first three quarters of 2024, almost 700 tons of the yellow metal were purchased for this purpose. J.P. Morgan points out that many central banks still hold relatively small positions. For example, gold accounts for just 5% of the reserves of the People’s Bank of China (PBOC). In this respect, the “buying frenzy” in this segment could continue. The US bank’s price forecast is correspondingly optimistic. J.P. Morgan believes that gold could rise to USD 3,000 per troy ounce in 2025. If you want to bet on this scenario, you can invest in the crisis currency with the ZKB ETF ZGLD into your portfolio.