Trump effect: US markets robust, Europe under pressure
October brought mixed developments on the capital markets worldwide. While the MSCI World and the S&P 500 rose in EUR terms, European markets came under pressure. The US indices benefited from the appreciation of the US dollar, whereas the DAX and the broad European market (Stoxx 600) suffered losses. The Japanese market also fell in EUR terms. Globally, (US) technology, communications services and financial stocks were in particular demand, while commodities and healthcare stocks came under pressure. In Europe, the technology sector, defensive consumer stocks and real estate stocks also weakened.
With Donald Trump's clear election victory, uncertainty about the outcome of the US elections has subsided. A recession or financial market crisis in the US still seems unlikely. A scenario similar to that of the mid-1990s - i.e. moderate US interest rate cuts in the absence of a recession - remains realistic. We therefore remain constructive for the markets in the short and medium term. While further interest rate cuts are to be expected in the US, the market's interest rate cut expectations for the 2025 fiscal year appear too optimistic. A slightly higher US interest rate level overall continues to speak in favor of the banking and financial sector, which we continue to view as positive. We also continue to see opportunities in the construction sector and in Japan. In general, we rate the USA and Japan as more attractive than Europe. The European economy remains burdened by structural problems in Germany and the risk of new US tariffs. The ECB will probably have to do more on the interest rate front than the Fed, which should continue to support the US dollar.
Opportunities that we see
The structural growth potential in the US remains higher than in Europe, which means that the US region continues to offer the better investment opportunities in the medium term.
Monetary: The global and US financial/banking sector is structurally well positioned, benefits from less regulation in the US and interest income could also be better than expected due to higher US interest rates in the long term. M&A activity is likely to increase in 2025 and crypto investments will receive an additional tailwind under Trump.
The construction sector has a full pipeline of infrastructure projects in the US and Europe. New orders for Ukraine construction could be added in the event of a possible ceasefire or peace agreement.
Japan offers one of the highest market risk premiums and is recording strong growth in share buybacks. A fundamentally positive aspect is that Japan is the only country in which short-term interest rates are significantly lower than long-term interest rates. Japanese financial stocks should also benefit from higher US interest rates.
Improved market breadth in the USA should benefit US small and mid-caps.
European companies with strong cost-cutting potential could also offer interesting opportunities.
Risks that we are monitoring
The market's expectations of US interest rate cuts currently appear too aggressive.
A renewed trade war between the US and China cannot be ruled out. Should Donald Trump introduce massive tariffs on Chinese imports, China could also react with a significant devaluation of the RMB. The outlook for Chinese equities is gloomy for the time being.
Trump's planned tariff measures could once again fuel inflation and thus lead to higher interest rates at the long end.
Europe and Germany in particular continue to struggle with structural growth problems. In Germany, high energy costs, high wages, bureaucracy and a lack of flexibility are jeopardizing the competitiveness of many industrial groups. The key automotive, chemical and mechanical engineering industries are becoming less competitive internationally.
Market technology
Market participants' optimism waned in the run-up to the US election. The price reaction on election day traditionally serves as a trend indicator for the following weeks, and so the outlook for the rest of 2024 remains positive.
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