Traders are worried the president-elect is tooling up for a trade war, but they are still piling into US equities
Ben Wright, columnist and associate editor at The Telegraph made reference to the results of our 2024Q4 Asset Allocation Survey in his recent article on Trump 2.0, inflation and the preference towards US equities.
Somebody make it all make sense. In the weeks since he was re-elected Donald Trump has threatened to impose tariffs on America’s three biggest trading partners, announced plans to deport millions of illegal immigrants despite a tight labour market, hung out with crypto bros, tossed around the idea of a Federal Bitcoin reserve and done little to dampen speculation he’ll meddle with central bank independence.
And yet, the S&P 500 is up 4.3pc since the election. There’s also been a significant uptick in the pace that global investors have pulled money out of Europe and emerging markets in order to throw it at US equities over the past month, according to data compiled by Barclays. What gives?
Most economists agree that tariffs on imports would lead to higher prices for US consumers, which would ultimately be bad news for US companies too.
One explanation doing the rounds is that investors are choosing to believe in the parts of the Trump agenda they like the sound of – tax cuts and deregulation – while choosing to ignore the fact that the president-elect is tooling up for a trade war.
Not so, according to Absolute Strategy Research’s (ASR) latest assets allocation survey, one of the best gauges of investor sentiment and the first since the US election. It suggests money managers are increasingly worried that Trump’s not bluffing and is now showing a 58pc probability that inflation, having steadily fallen steadily since its peak in June 2022, will be higher a year from now.
Source: ASR Ltd. / LSEG Datastream
ASR concludes this is a reflection of investor concerns about the consequences of higher tariffs combined with Trump’s plans to deport millions of illegal immigrants at a time when the labour market is already tight. Yet the research outfit’s findings also show a sharp swing in favour of US equities with the probability they will outperform non-US equities jumping by a chunky 11 percentage points since the previous quarter to hit 63pc.
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