Think tank UBS Research decided to make predictions a bit more entertaining by suggesting that Donald Trump’s possible return to the White House might add some sparkle to the economy and revitalize the stock market. The analysts cautiously note that this miracle could happen if Donald Trump cuts taxes, relaxes regulatory pressure, and, of course, pushes the US dollar’s value down.
Economic manoeuvres and their consequences
According to the analysts, a new Trump administration is likely to introduce generous tax abatement, especially to businesses. Indeed, no one would reject extra profits and investments? Besides, investors anticipate regulatory easing because fewer rules mean more freedom. Regarding Trump’s favorite trick with the US dollar, UBS believes that he will hardly convince the rest of the world to devalue it. Therefore, he could make efforts locally to dent its strength. Trump’s trade policy, aimed at supporting American manufacturers with import tariff hikes, might give domestic companies a chance to compete with overseas ones.
Who will benefit and who will not?
The financial sector is expected to be flooded with money like Scrooge McDuck in his coin pool. This aim will be achieved by looser regulation and increased interest rate spreads. UBS reminds investors that financial stocks soared after Trump’s victory in 2016. So, Wall Street should be ready for a déjà vu. The industries dependent on economic cycles, except for luxury-related sectors, will also be in favor. Thus, those who want to invest in value stocks and economically sensitive sectors should strike while the iron is hot.
Global scene and trade affairs
UBS emphasizes that America’s success will not happen in a vacuum—it will depend on the global economy and how quickly China regains its momentum. Countries trading with the US, such as South Korea, Germany, and Japan, might feel on edge due to increased import tariffs. On the other hand, India and the UK could sit back and relax, being unaffected by tariff hikes. Last but not least, the experts speculate on the budget issue. If Trump returns to office, the deficit could exceed 7% of GDP by 2028, regardless of party battles. UBS analysts reckon that under a Republican government, the deficit will be slightly higher. Market participants are aware the budget deficit will stand at 7% or even higher.
Trade tricks and inflation stunts
Trump is not going to rest on his laurels and plans to impose import tariffs: 60% on Chinese goods and 10% on merchandise from other countries. This could significantly reduce demand for these goods and trigger a market response. Last time, the stock market’s reaction was bearish, especially in the export sectors. So, Wall Street investors have to brace themselves for another roller coaster.
