With Donald Trump poised to begin a second term as US President in the coming months, investors should prepare for pro-growth policies under Trump's projected victory, UBS Chief Investment Officer Mark Haefele wrote Wednesday.
Trump’s second, non-consecutive term could bring extended tax cuts, deregulation, and a realignment of the US stance on trade and global affairs.
“Trump campaigned on a platform of extending personal income tax cuts, lower corporate taxes, deregulation, trade tariffs, immigration controls, and re-assessing America’s role in global affairs,” Haefele wrote. “If the Republicans secure control of Congress, the President would have greater scope to pursue his policy agenda.”
Tariffs, a cornerstone of Trump’s platform, could be one of the most consequential economic measures. Proposed tariffs of 60% on Chinese imports and 10% on other imports would severely impact U.S.-China trade, potentially curbing domestic demand, corporate profits, and global GDP growth. Haefele expects any tariff implementation to take time, likely not until 2025 or 2026, and potentially be modified through negotiations or legal challenges.
Fiscal policy uncertainties around government funding and debt ceiling deadlines may be reduced, Haefele suggested, but ongoing deficit concerns could still hinder Trump's tax cuts and spending plans. The Federal Reserve is expected to continue a neutral stance, with likely rate cuts over the coming months to support the economy in the face of policy uncertainties.
Markets responded positively on Wednesday to the projected Trump victory, with equity futures rising on the anticipation of pro-growth policies.
UBS expects the S&P 500 to reach 6,600 by the end of 2025, bolstered by lower interest rates, AI growth, and possible tax cuts and deregulation. Technology, financials, and utilities are favored sectors, though tech could face risks from potential tariffs, particularly for hardware and semiconductor firms.
Despite expected headwinds for renewable-focused utilities, UBS projects rising demand from AI data centers to support strong growth in power needs.
Treasury yields rose as investors anticipated higher fiscal deficits, but Haefele advised investors to take advantage of elevated yields to lock in gains. The dollar strengthened by 1.6% as markets priced in Trump’s fiscal policies, though UBS expects a gradual depreciation over time due to US deficits.
Gold, down 0.6%, could see longer-term gains from continued central bank buying and geopolitical uncertainty, with UBS targeting $2,900 per ounce by September 2025.
“The market appears to be taking a strong view on the potential inflationary impact of Trump’s policy agenda, when there is still considerable uncertainty over the extent to which it can be implemented or its actual effect on inflation,” Haefele wrote. “Bonds are also attractive from a portfolio perspective, with potential for significant upside in a risk case of the US entering a recession.”