“The fog’s hangin’ over the runway («U dr Näbu chläbt über dr Startbahn»). Could there be a more apt description of the dreary weather that’s gripped large parts of Switzerland for weeks now than the familiar line from Patent Ochsner’s song? According to official statistics, there was less sunshine this October than there has been for ten years. If you’re looking to escape the drab monotony, the only thing left is to flee to the mountains or, as the hit song “Bälpmoos” has it, to faraway places and the beckoning sun.
The feeling of being trapped in a diffuse grey with no clear contours is not only pervading our everyday lives, it also reflects the current global political situation. For many, Donald Trump’s election as US President has contributed significantly to this in recent weeks. For the financial markets, the most important question is which of his numerous economic policy plans will he actually implement, and to what extent. No doubt some have been put together more as a threat, with a view to getting a good deal.
Trump’s list of promises to voters couldn’t be much longer. It includes lower taxes, less regulation, less bureaucracy, a smaller state, less inflation and lower interest rates. In return, he wants more entrepreneurship, more growth and more “America”.
These ideas sound promising and were welcomed by the US stock markets. The leading US stock indices rose by several percentage points after the election. These gains have since declined somewhat, but performance since the election is still clearly positive.
It does look likely that Trump’s promises, particularly on deregulation and massive tax cuts, will bolster high growth, not only for the US economy but also the stock market. We can assume this as the signs of US economic weakness have not intensified in recent months. We’re building up our allocation to the US market to benefit from this brighter short-term economic outlook and positive market momentum.
But we’re still fully aware of the numerous contradictions and risks in Trump’s election programme. There are few spending cuts to offset the tax cuts mentioned. This is set to massively increase government debt in the coming years and is also likely to have an impact on the US stock market. Capital market interest rates have already risen significantly in the past two weeks.
Meanwhile, there’s no sign of any sustained fall in inflation given the huge fiscal policy stimulus measures and comprehensive trade tariffs announced, which will massively increase the cost of imports. And the isolation of the US economy from international competition is hardly likely to boost competitiveness and productivity.
It means we remain cautious about the US market despite the slight increase in the allocation to US equities and are keeping our allocation slightly below the long-term average. We’ll also continue to closely analyse market dynamics and adjust our risk appetite once the fog begins to clear.
