The new administration under President Donald Trump has not stuck to the script that most economists and analysts laid out in their scenarios before the US elections in November 2024. Will Trump's agenda of deregulation and tax cuts, but also high tariffs, on balance boost or hinder the economy? finews.asia spoke to Daniel Morris, Chief Market Strategist and Co-Head of the Investment Insights Centre at BNP Paribas Asset Management, about this.
Morris has more than two decades of investment experience. Prior to joining BNP Paribas AM at London in 2015, he was Managing Director and Global Investment Strategist at Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), a teacher pension fund founded in 1918 by entrepreneur and philanthropist Andrew Carnegie, which today manages over $1.4 trillion in assets. Morris also previously worked at J.P. Morgan Asset Management, Lombard Street Research and Bank of Americas Securities investment experience.
Mr. Morris, before the US elections you tried to anticipate the consequences of the various scenarios for the financial markets. The new government has now been in office for a few weeks. Have things developed as you expected?
No, we were surprised, firstly by the election result itself. Then we convinced ourselves that we already knew Trump from his first term in office. But this time it's definitely different. The government is much more aggressive and resolute, it acts quickly, is better prepared and organized. We never thought it would move at such a fast pace.
Does this have an impact on your financial market forecast?
Not fundamentally. We are still assuming that the US economy will grow significantly and are therefore positive for US equities in the medium term. But we expect much more volatility than before. And we have made a tactical change: from overweight to neutral for US equities.
«We don't know yet whether Trump really wants to establish tariffs as a permanent source of government revenue.»
Because of Trump?
Yes, we don't know yet whether he is merely using tariffs and the threat of tariffs as a bargaining chip or whether he really wants to establish them as a permanent source of government revenue. He has already described tariffs as value-added tax that only has to be paid by foreign countries. If the second is the case, then the trading partners could respond with retaliatory tariffs. I wouldn't call it a tariff war yet, but tensions are rising.
Are the concentration risks in the US stock market due to the high weight of large technology companies?
This was the case in 2024, but the dominance has already waned somewhat in the meantime. Profit expectations for small caps are now higher than for Nasdaq companies and the concentration risk is decreasing. Deepseek has not changed everything. It is perfectly normal for technologies to become cheaper. If artificial intelligence applications become more affordable, demand will increase. Overall, however, the pie on the stock market will continue to grow.
«I assume that the Fed will not take orders from the White House.»
Trump called Federal Reserve Chairman Jerome Powell an enemy of the state during his first term in office and is now criticizing him again. Is this just for show or a threat to the independence of the Federal Reserve?
The Fed will continue to focus on inflation and economic growth and wait to see how Trump's policies will affect them. I assume that monetary policymakers are not taking orders from the White House.
Yields on ten-year US government bonds remain at a comparatively high level despite initial interest rate cuts. Is there a threat of inflation, are the guardians of the bond market at work, or is this simply an expression of good growth prospects?
There are many drivers for yields, which can go in different directions. Tariffs are likely to provide only a temporary boost to inflation, and medium-term inflation expectations on the market have not increased. Higher economic growth brings higher real interest rates, and the assumption that Trump's deregulation and tax cut agenda could stimulate the US economy is not completely crazy.
So why is Europe doomed to always lag behind the US, not just in the stock market, but also in banking and innovations such as AI?
The simple answer is that the US is growing faster because the labor market is flexible and regulation is generally at a low level. This is the result of a conscious political decision. For Europe, job security is more important than growth. We saw that during the coronavirus crisis: Unemployment figures skyrocketed in the US, while in Europe the state compensated companies handsomely for not laying off their employees.
«For Europe, job security is more important than economic growth.»
You work for a major French bank. Isn't the political situation in France worrying, also for investors?
The political turbulence remains within the expected range. We believe that the outlook for European equities is positive. Of course, structural reforms should be implemented, which was also addressed in Mario Draghi report. But if anything happens, it will not be because of the Draghi report, but because Europe will come under even greater pressure from the wave of deregulation from the US and will have to act.
Doesn't deregulation of the US banking system jeopardize financial stability?
From the perspective of the supervisory authorities, any deregulation is of course dangerous; if everyone in road traffic only drove at 5 kilometers per hour, the system would also be much safer…
Bitcoin and gold had a good run last year. What role do they play in your asset allocation?
We are not active in Bitcoin, but I can say a few things about gold. We have overweighted it in our multi-asset portfolios. On the one hand, we assume that the price will continue to rise, not least because the central banks are still on the buying side. Secondly, gold is a hedge against risks of all kinds, such as an overheating US economy, a return of inflation or excessive tax cuts and budget deficits.
