Donald Trump returns to power, his Republican Party will likely regain control of the Senate and, in all likelihood, the House of Representatives.
This will allow the elected president to pass on his priorities with little difficulty. It lacks a change of course for the United States, which is not necessarily likely to displease investors. Here's why.
Tax burden in the crosshairs
If there is one front on which Donald Trump and his party are perfectly aligned, it is the desire to reduce the tax burden on the entire American economy and to let the business world do so.
Households and businesses will benefit from this general reduction in the tax burden, which will allow some to increase their disposable income and others to increase their profitability. Demand will naturally benefit from this, and US growth will remain dynamic in the coming years.
Of course, the tax burden had to be reduced, regardless of who won the election. On the other hand, the most significant change compared to the Biden years will come from adopting less interventionist policies on the regulatory front, with less restrictive standards for companies. The latter will, therefore, have free rein to invest as they see fit, with fewer constraints – and consequently reduced costs – particularly on the environmental front, but not only. The chances of the US state attacking the dominant positions of the tech giants will be significantly reduced.
Companies should be better able to perform if they are freed from the significant costs of these regulations, benefit from a reduced tax burden, and have increased visibility for years to come. Therefore, it is not surprising that the equity markets reacted positively to the outcome of this election. The S&P500 of the US stock market is heading for an all-time high. However, the most robust rebound is to be noted on the side of American small-caps (SMEs), which depend more on the good health of the local economy and the consumer. This is a sign that investors see an improvement in the real economy.
US interest rates and the rising dollar
Of course, reducing the tax burden leads to a significant loss of revenue for the American state's coffers. If Donald Trump is betting on tariffs to fill this void, they should prove insufficient.
The United States' financial situation will, therefore, continue to deteriorate, and the debt markets are taking this into account. Financing needs are expected to be significant, and interest rates on US debt are trending upwards towards 4.5%, compared to less than 3.7% a month ago. Rising interest rates are synonymous with lower bond prices, which is bad news for US debt holders.
However, at least in the case of eurozone-based investors, it is more than offset by the dollar's rebound. Indeed, the higher yields, combined with the expected dynamism of the economy, translate into increased demand for the US dollar.
At around 1.07 USD to the euro, the American currency is at its highest since the beginning of the summer. Theoretically overvalued against the euro, the USD remains a safe bet, and American dynamism contrasts with Europe's, which will have a hard time making its way in an increasingly hostile world.
Pressure on energy transition and emerging economies
The implications of Trump's return will be felt far beyond the borders of the United States. The rise in yields offered by the United States and the high dollar are not necessarily good news for emerging countries. American competition in the debt markets will prevent the fall in interest rates on emerging debt from going much further. At the same time, it is putting pressure on emerging currencies, which are struggling against the US dollar and the euro.
Energy prices will also be impacted. Donald Trump is well aware of the immense energy potential of the United States and intends to take advantage of it to promote production - including by reducing the standards that weigh on the sector - offering Americans and the world cheap energy. The price of oil, currently supported by OPEC's efforts to weigh on the black gold supply, is trending downwards and is likely to go towards permanently lower levels.
This good news for the consumer will probably complicate the energy transition because cheaper oil will make investing in renewables less attractive, especially in consumers' eyes.
Finally, we must not neglect Donald Trump's desire to impose customs duties. While they will probably not be as large as the new president wants, there is little doubt that the United States will impose tariffs on China and Europe. This will weigh on one of the few avenues of growth that European companies still have.
Faced with this danger, the markets expect the European Central Bank to cut its key rates more quickly to keep our economies afloat. It remains to be seen whether this will be enough to achieve this, which is not easy. In the meantime, it is difficult to see what could slow down the current momentum: US companies are reporting earnings that are at the top of expectations or even exceeding them and are much more confident in their growth prospects than their European competitors.
Companies on a good momentum
Donald Trump's return to office marks a turning point for the United States. With the Senate, the House of Representatives and the Supreme Court dominated by Republicans, he will have the means to shape the country like few presidents before him.
Of course, the expected slippage in public finances is worrying. Fundamentally, investors see the United States as a market with a strong growth dynamic, and companies will benefit from a very promising tax and regulatory framework that will allow them to increase their profit margins.
In such a context, it is difficult to find markets capable of comparing with the US markets or not to advise US assets to buy, even if the latter are not cheap at this stage. In terms of valuation, the US market is trading at 21 times expected earnings.
This is a fair level, in our opinion, given the earnings growth potential of the country's companies and their positioning in the most dynamic sectors of the economy. This justifies remaining invested in these stocks. In technology stocks, the sub-fund is trading at 28 times earnings. This is a high level overall, while we do not expect strong earnings growth in 2025, which may lead to a few jolts in the event of bad news.