We proceed our evaluation of Trump 2.0. Usually, a single coverage dominates annually following a brand new administration’s election (e.g., tax reform in 2017, the commerce battle in 2018, COVID-19 in 2020, and industrial coverage/CHIPS Act/IRA in 2021). Nonetheless, Trump 2.0 is addressing a number of insurance policies concurrently. The noise-to-signal ratio is exceptionally excessive—give attention to what issues and what we all know, as outlined under. A lot of the tariff debate falls into the class of “identified unknowns,” with each scope and sequencing nonetheless unsure.
What we all know:
Tariffs: FX markets are the place commerce coverage exhibits up essentially the most, and at present markets are pricing in a situation resembling a worldwide tariff. Trump needs international locations to barter with him straight. He threatens with reciprocal tariffs to get international locations to speak to him (living proof, Modi). If reciprocal tariffs take impact, EM international locations shall be hit worst (India, Argentina, Mexico, Brazil, Vietnam, Taiwan, Indonesia).
a) From an investments standpoint, we predict that companies sectors will outperform items sectors. Firms which can be pro-border-adjustable tax (winners): Boeing (BA), Normal Electrical (GE), Caterpillar (CAT), financials akin to Financial institution of America (BAC), JP Morgan (JPM), Mastercard (MA), Prudential (PRU.L). Firms that are anti-border-adjustable tax (losers): Walmart (WMT), Nike (NKE), Hole (GAP)., Toyota (TM).
b) Lastly, we predict China is handled in a different way than different international locations. Trump doesn’t need any US firm to function in China, interval. US corporations levered to China will proceed come below strain.
Traditionally, shares do nicely within the 1st yr of a brand new president until there’s a recession. The final 4 cycle of 1st years of a president have produced +20% returns. It’s the second yr when shares come below strain when insurance policies filter by way of the financial system.
Since 1973, financials have outperformed the S&P 500 throughout each 1st yr of a brand new president (aside from one yr, 2009 monetary disaster). Healthcare shares have outperformed the S&P 500 within the 1st yr of each Republican administration since Reagan, 1981.
Which monetary markets indicators matter essentially the most to the brand new administration (per Treasury Secretary Scott Bessent’s current interview with Larry Kudlow): 1. 10-year yield, 2. Worth of oil. 3. Worth of gold – we monitor these to gauge the course of coverage.
If Congress wished to do an-unpaid-for-tax cuts, the bond market would ship a punishment. Therefore, give attention to reducing spending to historic ranges first (DOGE). Sectors that come below strain because of decreased spending: client staples, vitality, training, transportation. Constructive for protection shares.
For H1 2025, we predict that the US market is nicely supported by liquidity equipped by the US Treasury. On January twenty first, the US hit the debt ceiling (US can not situation web new debt). As an alternative, Treasury is now paying its payments, a liquidity tailwind (400-500 USD bil.) for markets (hold yields low), monetary situations loosen. In impact, just like QE. This can keep till Congress raises the debt ceiling (can situation new debt), and till then assist hold yields/USD in examine. Counter forces (increased yields) are: 1. Sticky CPI, 2. Tariffs, 3. Price range deficit
Bottomline: Trump 2.0’s coverage strategy, significantly round tariffs, is making a excessive stage of uncertainty within the markets. Key sectors prone to outperform embody financials, companies, and border-adjustable tax corporations, whereas these uncovered to China or reliant on international commerce might face strain. Liquidity from the US Treasury and a weakening USD may assist the market in H1 2025, however dangers stay, together with tariffs and sticky inflation.
In Focus: German Elections; DAX on Report Run Regardless of Recession
Expectations for the Upcoming Election: Polls present the CDU/CSU main comfortably, adopted by the AfD in second place. The SPD and Greens are in a decent race for third, whereas the FDP, Die Linke, and BSW wrestle with the five-percent threshold. Key questions stay: how sturdy will the CDU/CSU carry out, which coalition companion will they select, and can a single companion suffice? With CDU chief Friedrich Merz ruling out cooperation with the AfD, the 2029 election may turn out to be considerably extra attention-grabbing, particularly if the AfD’s assist continues to develop. Quick-term market reactions are attainable in case of an surprising consequence or troublesome coalition talks, however long-term elements like rates of interest, inflation, and the worldwide financial system stay extra essential.
DAX Evaluation: One week earlier than the German federal election (Sunday, 23 February), the DAX continued its record-breaking rally, whereas the German financial system stays in recession. This obvious discrepancy is definitely defined: DAX corporations generate most of their revenues overseas. In key export markets just like the US, China, and France, situations will not be excellent however stay higher than in Germany. International giants like SAP, Siemens, and Infineon profit from megatrends akin to digitalization, automation, and renewable vitality.
These German Shares Belong on Your Watchlist: Key challenges embody infrastructure enlargement (ThyssenKrupp, Hochtief, Bilfinger), paperwork discount and digitalization (SAP, Software program AG, Bechtle), vitality transition (Siemens Vitality, Nordex, Encavis), housing (Vonovia, LEG Immobilien), future applied sciences (Infineon, Carl Zeiss Meditec), and reforms in pensions and healthcare (Fresenius, Siemens Healthineers, Medios).
Germany Sticks to Its Debt Brake: With a debt-to-GDP ratio of 63 %, Germany stays strong by worldwide requirements. Japan is 4 instances extra indebted at 250 %, whereas Italy (135 %) and the US (123 %) have roughly double the debt ranges. To achieve a debt ratio of 101 % just like the UK, Germany would wish to tackle round €1.59 trillion in further debt. Even a fraction of this might finance much-needed investments with out jeopardizing long-term fiscal stability. Notably, Germany is the one nation in our comparability (see chart) with a declining debt ratio over the previous 20 years.
Debt Alone Gained’t Clear up Germany’s Structural Points: Its low debt ranges present vital fiscal leeway for development and disaster administration – a chance that continues to be largely untapped.
Bottomline: The upcoming German election is unlikely to disrupt markets until coalition negotiations show unexpectedly troublesome. Buyers ought to give attention to structural themes, digitalization, automation, and vitality transition, whereas monitoring potential fiscal shifts post-election, significantly concerning infrastructure and industrial coverage. 
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