Momentum on the US equity market is likely to continue in the short term

The positive momentum on the US equity market may continue for the time being. The tax cuts for companies announced by Trump and the continuation of the tax cuts for private households introduced during his term of office look set to keep the US economy ticking over in the short term. We are therefore reducing our underweighted position in the US equity market.

However, there is a considerable risk that price pressure on goods and services under Trump will take longer to disappear than some voters are hoping. Excluding volatile components such as energy and food prices, inflation currently stands at 3.3 percent. The overall inflation rate rose recently to 2.6 percent. Against this backdrop, it will probably take far longer for inflation to fall back below the target of 2 percent. 

US capital market interest rates at a higher level

US capital market interest rates have already reacted to this trend. Following the US elections, yields to maturity on 10-year US government bonds rose to over 4.4 percent. In mid-September, yields to maturity were still at around 3.6 percent. Expectations regarding further policy rate cuts in the US have also declined sharply, with market participants currently expecting a rate of 4 percent for summer 2025. In mid-September, the figure was still 3 percent. The financial markets are therefore assuming that monetary easing will be carried out far more slowly. This view was reinforced by the comments made in mid-November by US Federal Reserve Chairman Jay Powell, who stressed that the Fed was in no hurry to reduce policy rates. It means long-term capital market interest rates are also likely to remain higher for the time being.

US government bonds with attractive yields

With a current yield to maturity on 10-year US government bonds of over 4.4 percent, government bonds remain very attractive. Before the tightening of monetary policy in spring 2022, interest rates at these levels were last seen before the financial crisis. We are therefore maintaining our overweighted position in US government bonds at the expense of bonds in Swiss francs. At the same time, long-term capital market interest rates, which are significantly higher than in mid-September, are likely to limit the performance of the US equity market in the medium and long term. So far, both share prices and long-term interest rates in the US have risen. However, higher interest rates mean that companies’ future cash flows are worth less today, which indicates that sooner or later, share prices will come under pressure. It means we’re keeping a very close eye on developments, particularly in the US.

Performance of asset classes

Our positioning – Swiss focus