NewsTrump's return raises market volatility and trade war fears

Trump's return raises market volatility and trade war fears

Donald Trump will replace Joe Biden as President of the United States. How might this change in Washington affect global financial markets? We asked analysts this question. Money.pl's interlocutors agree on one thing: volatility will be immense.

Donald Trumpa returns to the White House. What does this mean for financial markets?
Donald Trumpa returns to the White House. What does this mean for financial markets?
Images source: © Getty Images | 2024 Getty Images
Karolina Wysota

On Monday, January 20, Donald Trump will be sworn in as the 47th President of the United States. The Republican first held this office from 2017 to 2021.

- Donald Trump adheres to a tactic of keeping everyone uncertain, so one thing is certain: you can't predict what he will do. One can only apply the principle of ceteris paribus, meaning to look at markets assuming that the initial conditions remain unchanged - says Piotr Kuczyński, a financial markets analyst at Dom Inwestycyjny Xelion.

America First

Donald Trump's main campaign slogan was: "America First." If the president does not change course, a policy favourable to American business should be expected. And that counts for Wall Street, the financial centre of the USA.

Trump promises golden times to it, strengthening the financial position of the United States not only as a country but also as an empire comprised of numerous private businesses. No wonder this appeals to investors. After all, the game is about technological and financial dominance - says Eryk Szmyd, a financial markets analyst at XTB.

Mateusz Krupa, an equity market strategist at mBank Brokerage Office, recalls that Trump's previous administration was known for pro-business rhetoric, corporate tax cuts, and deregulation. According to our interlocutor, a renewed emphasis on stimulating the American economy could benefit cyclical sectors (finance, consumer discretionary, industry), but also sectors such as defence, energy (especially oil and gas), and infrastructure.

- Trump has repeatedly emphasized the priority of U.S. energy independence, which could create a favourable environment for companies in the extraction and fossil fuels sector. For investors, these are potential opportunities, but at the same time, the market must be prepared for short-term volatility caused by impulsive decisions and protectionist policies - says Mateusz Krupa.

Eryk Szmyd shares a similar view. - Investors' attention will focus on the energy sector, which may benefit from deregulations and a return to traditional, fossil fuels, as well as the revival of the nuclear sector - says the XTB analyst.

In his opinion, the assets of American companies could gain, growing thanks to their special role in the U.S. economy and the broader industrial machinery. Financial sector companies like CBOE Global Markets and Chicago's CME Group will be indirect beneficiaries of increased volatility in global markets. Small and medium American companies also have something to look forward to.

Anti-China Policy

Reindustrialization aims to make the U.S. more resilient in the event of a conflict with China and to make the West independent of Asian markets. Meanwhile, energy independence and nuclear investments aim to support the development of new technologies related to artificial intelligence. This leads Eryk Szmyd to conclude that under this Trump presidency, investors will be willing to pay more for "made in America" companies whose exposure to Asia is limited, and whose business resilience to market changes is relatively high.

According to XTB's analyst, the attention of Wall Street could be drawn to technology-industrial companies related to the defence sector and strategic U.S. investments. It concerns not only defence contractors but the entire network of companies revolving around the military-industrial complex and infrastructure. These include providers of advanced electronic and mechanical components like Heico, Curtiss-Wright, Teledyne Technologies, Howmet Aerospace, Palantir, Axon Enterprise, and Parsons. Also, BWX Technologies, a company providing solutions and services for the civilian and military nuclear sector.

According to Szmyd, investors will also be interested in the stocks of large industrial conglomerates like GE Aerospace, Honeywell, 3M, or Rockwell Automation. Even if technology companies don't fall from Wall Street's pedestal, in XTB's analyst's opinion, they may have a bumpy road due to export restrictions and uncertainty related to China. He has no doubt that in the context of Washington-Beijing relations, the topic of Taiwan and the Panama Canal will return repeatedly, while the expansion of the American fleet and the development of underwater drones could support the business of the shipbuilding corporation Huntington Ingalls.

- Just look at the stock prices of companies like Vistra to realise that not only Nvidia and the tech sector present investors with amazing opportunities - says Szmyd. - Trump also means cryptocurrencies, with a focus on bitcoin, for which the year 2025 looks optimistic - he adds.

The key risk highlighted by Mateusz Krupa from mBank is the return of the United States to an aggressive trade policy, especially towards China.

- Trade wars that characterized Trump's first term could again trigger market tensions and disrupt global supply chains. Prolonged trade conflicts could negatively impact export sectors and companies heavily dependent on international markets - the analyst believes.

Piotr Kuczyński from Xelion is more optimistic in this regard. - Trump's trade policy will not be as dangerous as he announced before the election. Tariffs on Chinese products will be selective and much lower than the announced 60%. The same will apply to tariffs on European products. China will counter these tariffs with fiscal aid for the economy, so I assume that the year 2025 will belong to Chinese stocks - says the interlocutor of money.pl.

Safe Havens

According to Kuczyński, precious metals are worth paying attention to. Mateusz Krupa shares a similar opinion.

In the face of potential uncertainty, gold and the U.S. dollar may potentially be treated as safe havens, although the dollar itself may play tricks, because during Trump's previous term after the inauguration, it significantly weakened due to increased investor appetite for risk - says the BM mBank strategist.

According to Krupa, it's worth monitoring U.S. Treasury bonds, which traditionally gain during periods of heightened risk. Their current yield levels, especially against the backdrop of a not-so-cheap American stock market, seem attractive to him.

As for the Polish financial market, Piotr Kuczyński believes it will behave like the European one and does not think that Trump's pre-election criticism by Polish politicians will have a negative impact on Poland-U.S. relations.

- If that were to be the case, J.D. Vance wouldn't become Vice President (he called Trump the American Hitler), and the previously highly critical of Trump Elon Musk wouldn't currently be the new president's closest collaborator - convinces the Xelion analyst.

He believes that the most important thing for Poland now is to manage to freeze the war between Russia and Ukraine for a long time. According to him, there's a 50% chance of an armistice.

- It may turn out not only that the war doesn't end, but Vladimir Putin might insult Donald Trump with something, escalating the war, which would greatly harm Poland - says Kuczyński.

From a global perspective, Trump's administration could once again undermine trust in international alliances, which could destabilize markets in regions like Europe or Asia. This, as explained by Krupa from mBank, means potential turmoil for investors in sectors related to international trade and emerging markets, especially those, he emphasizes, dependent on trade with the USA and China.

Karolina Wysota, journalist money.pl