The broad American stock index S&P 500 rose nearly 5% last week in the aftermath of the Republican landslide in the U.S. election. However, European stocks fell by 1% following Donald Trump’s threats of tariffs.
Danske Bank’s strategist, Maria Landeborn, expressed in a weekly newsletter that investor uncertainty has decreased in the short term, given the clear election results. She anticipates an expansionary fiscal policy under Trump, with a clear focus on promoting business and growth. Reduced taxes and deregulation are expected to boost company profits and support the stock market. One concern is the incoming president’s threats of tariffs, but Danske Bank does not believe they will be as high as he has threatened.
Landeborn also assesses that the expected interest rate cuts in the U.S. and globally over the next six months could strengthen risk appetite. Danske Bank has raised its recommendation for stocks to double overweight and lowered interest rates to double underweight.
“We expect renewed optimism about growth to continue lifting markets towards the end of the year. Seasonally, we are also in the strongest period of the year, which extends from October to April,” Landeborn writes.
Jon Arnell, Chief Investment Officer at von Euler & Partners, also believes that the election outcome could provide tailwinds for the markets.
“In the short term, the feeling of euphoria in the American market may persist, where focus on tax cuts and a potential growth agenda fuels risk in general. In other words, there is potential for a good year-end,” he writes in a market letter.
However, Arnell sees a longer-term risk that Trump’s expansionary fiscal policy could contribute to renewed inflation and higher interest rates, which could shake up the markets. Additionally, he believes that sentiment and valuations are already stretched, emphasizing the importance of portfolio diversification.
In conclusion, while the market outlook appears positive in the short term following the U.S. election results, there are potential risks to consider in the long run. Investors should stay vigilant, diversify their portfolios, and be prepared for potential market volatility in the face of evolving economic and political landscapes.