Around three months later, the winds have changed. The initial optimism has now been overtaken by economic and political reality. Although many market participants had hoped that Trump would focus on the growth-boosting measures set out in his election programme, he has so far mainly pursued trade policies that are strongly protectionist. At the heart of them are punitive tariffs against China, Mexico and Canada – regularly announced, cancelled and then revived.
It’s difficult to predict what Trump might do in the future, but some initial consequences of his political intentions are already clear: consumer confidence in the USA has deteriorated sharply and consumption, a key pillar of economic growth, was unexpectedly weak in January. On top of that, the tariffs announced have massively increased inflation expectations among American households. For 2026, households now anticipate inflation of just under 5 percent – significantly higher than the current rate of 3 percent.
This expectation is well-founded, given that prices for the goods affected by tariffs are likely to rise significantly in the USA. Their US competitors also have little incentive to keep their prices low – experience has shown that domestic companies use situations like this to raise their prices and improve their profit margins. And production capacities first need to be increased, or in some cases even completely reestablished in order to close the supply gaps caused by punitive tariffs. Given that inflation expectations, in turn, have a significant impact on actual price trends, economic performance during Trump’s second term so far has been sobering.
These developments have also recently weighed on US stock markets. Although the European markets, including the Swiss stock market, have been surprisingly stable and even risen since the beginning of the year, the S&P 500 and the Nasdaq have both seen significant corrections. The two indices are currently trading at around 6 and 10 percent below their respective highs – back at the levels they were before Donald Trump took office. Ironically, the markets suffering the most are those that were originally supposed to make the greatest gains from Trump’s presidency.
It means the economic risks and fears of inflation we’ve been warning about for some time are now increasingly reflected in the markets. We are therefore further strengthening our already defensive positioning towards US equities. After all, when the winds shift and the seas get rougher, calm and clear navigation is what keeps you safely on course.
