After being sworn in as the 47th President of the United States, Donald Trump swiftly signed a barrage of executive orders. Equity markets could remain volatile in the near term but expect growth to continue amid political uncertainty, according to UBS.
Shortly after being sworn in as the 47th US President, Donald Trump did not waste any time to make good on a Sunday speech that promised to sign «close to 100 executive orders». The orders and other actions covered a myriad of areas including environmental policy, energy, immigration and government efficiency.
«President Trump’s policy agenda – if enacted in its entirety – would have significant macroeconomic repercussions,» said a note by UBS’ chief investment office.
«However, financial and political constraints are likely to mean that enacted policy risks falling short of campaign pledges in some instances. There is also the consideration that the president may 'escalate to deescalate,' with some of his proposals likely to prove to be negotiating tactics.»
Political Outlook
According to UBS, there are certain things that Trump will not be able to execute independently. This includes the return of undocumented migrants as funding is currently not available alongside inflation risk from reduced labor supply. The pledge to increase oil production and fill the Strategic Petroleum Reserve (SPR) also requires funding from Congress as well as support from private companies that dominate the market.
But elsewhere, the President could unilaterally make moves. This notably includes the ability to impose tariffs on imports. The bank’s current base case includes a 25-30 percent tariff rate on China and measures to protect technological interests, rules limiting transshipment, and tariffs on EU autos and pharmaceuticals.
«The use of a memorandum proposing scrutiny of current practices rather than the immediate imposition of fresh tariffs has partially reassured markets in the short term. However, his later comments on Canada and Mexico tariffs served to remind markets of the two-way volatility that can accompany Trump's policy pronouncements,» the bank noted.
Investment Recommendations
Despite the political uncertainty, UBS is optimistic on markets and its base case for the US economy is «growth despite tariffs». It believes that inflation will continue to fall, allowing the Federal Reserve to cut rates by 50 basis points later this year.
On equities, it expects the S&P 500 to reach 6,600 by December due to resilient growth, solid earnings growth, lower borrowing cost and the potential for greater capital markets activity to offset tariff risks, US fiscal policy concerns and shifting expectations around inflation. It favors high quality segments in fixed income, particularly government and investment grade bonds, with a 4 percent target for the 10-year Treasury yield. Its base case for the EUR/USD is 1.02 in June and 1.06 in December.
