Economic activity is likely to remain positively oriented, particularly in the United States, where more expansionary fiscal policy should serve to maintain the already strong growth over the coming months and quarters. All else equal, this is favourable to equities and other risk assets including credit.
We maintain a favourable outlook for equities, not least US equities, which should be supported by lower taxes on corporate profits, though look for greater breadth away from the mega-cap stocks that led in 2023 and the first half of 2024. European equities could benefit in the short term also, while China and other emerging equities are at some risk from trade tensions.
Bond markets will remain uncertain in the short term. The risks of higher inflation due to Mr. Trump's anticipated policies could prolong the recent trend higher in bond yields (in the US but also Europe). Although credit spreads are currently tight by historical standards, investment grade corporate bonds should remain in demand on the improving economic outlook.
We expect the US Dollar to remain strong against major currencies. The environment of higher growth, higher interest rates, and protectionist policies should keep the Dollar well supported.
