Investing.com -- Following Donald Trump's election victory, UBS analysts released a note this week providing insights into the potential impacts of a second term on U.S. markets and global investments.
After the election, U.S. equities surged, with the S&P 500 gaining 4.7%, marking its best weekly performance of 2024.
Small-cap stocks also saw a significant jump, with the Russell 2000 up 8.6%. According to UBS, the rally reflected investor relief over a decisive election result and expectations of "deregulation and tax cuts."
UBS highlights that the immediate market reaction points to stronger growth, higher inflation, and a slower pace of interest rate cuts.
"The uncertainty of a contested election... has been removed," UBS writes, with investors now looking ahead to fresh uncertainties, particularly around trade tariffs, immigration policy, and geopolitical concerns.
"Markets have started to digest Trump’s victory, with the initial response pointing to expectations of stronger growth, higher inflation, a slower pace of interest rate cuts, and trade tariffs," added the bank.
While the removal of a contested election is seen as positive, UBS emphasized that the market is still awaiting further policy signals.
UBS added that with a Republican Senate and a Republican-controlled House of Representatives, the potential for gridlock remains, especially in the run-up to the 2026 midterm elections.
Investors are closely watching how Trump’s policies will evolve, especially regarding fiscal policy and its potential to drive inflation.
For equities, UBS is bullish on sectors like technology, utilities, and financials, projecting the S&P 500 could reach 6,600 by 2025.
In fixed income, the investment bank advises locking in attractive yields, as they expect the easing cycle to continue despite recent interest rate hikes.
In currencies, UBS anticipates the U.S. dollar's strength may fade in the medium term due to fiscal deficits, urging investors to diversify.
Overall, UBS suggests that while volatility may persist, long-term growth potential remains robust under a second Trump term.