The American people have elected Donald Trump as US president for the second time, after a four-year hiatus. The election result was more decisive than the first presidential election eight years ago and clearer than had been expected in the run-up to the vote. In addition to the presidency, the Republicans also emerged victorious in the US congressional elections. They have regained control of the Senate and are likely to retain a majority in the House of Representatives. This could give the US president additional room for manoeuvre.

Tariffs and tax cuts

Over the next four years, Donald Trump is likely to focus his economic policy on making the US less economically dependent and strengthening domestic production. To this end, he plans to introduce comprehensive import and punitive tariffs, as well as measures to limit China's access to advanced technologies. He has also announced that the tax cuts for private households already introduced during his first term will be permanently extended and that corporate taxes will be further reduced. This reduction in the overall tax burden could give the US economy a short-term boost, enabling it to maintain its strong growth for the time being.

Trump's plans differ significantly from Harris's, particularly with regard to tax policy. Harris planned to raise taxes for large companies, wealthy individuals and on capital gains. This was probably a major reason why the stock markets rose in the initial reaction to the election result. The US S&P 500 benchmark index opened sharply higher. In this environment, global stock markets, particularly those in Switzerland, Europe and Japan, have also risen.

Persistent inflation and further budget deficits

However, the continued robust economic development is likely to maintain the pressure for prices to rise further, thus further complicating the fight against inflation, which has already faltered considerably in recent months. Furthermore, the planned tax cuts will lead to a decline in government revenues and cause a significant increase in debt. The debt situation would be particularly accentuated if the US economy weakened or even fell into a recession in the next few years. In that case, Trump would probably launch substantial spending programmes.

In view of this combination of persistently high inflation and rising debt, it is unlikely that interest rates on the US capital market will trend downwards in the next few years. Immediately after the election, interest rates on 10-year US government bonds even rose by more than 10 basis points. High interest rates are also likely to place certain limits on the performance of the US stock market in the medium and long term.

Cautious positioning

In this environment of economic uncertainty, we are maintaining the current positioning of our client portfolios. Even before the presidential elections, we were cautious about the US equity market. We also remain comfortable with our slight underweight in the European equity market, as this is particularly affected by the close trade links with the US and China, as well as the increasing fragmentation of supply chains. However, we will continue to monitor political and economic developments closely on behalf of our clients.