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It is now clear that Donald Trump will be the Republican candidate in the US presidential election. If Trump wins, he could try to support the domestic economy by further increasing US debt. “On the one hand, this would be favorable for the US economy – however, the recent upswing was already based on massive political support,” says Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM.

For months, a significant weakening of the US economy had been predicted and a recession seemed certain for a long time – after all, the Federal Reserve had raised key interest rates sharply in a relatively short space of time in order to combat inflation. “The recession was seen as the price to be paid for curbing inflation rates,” explains Gerlinger. However, the inflation rate has since fallen significantly and a recession has been avoided.

The main reason for this was the fiscal stimulus: while the eurozone had a budget deficit of around 3.5% of gross domestic product (GDP) last year and wants to reduce this deficit further, Washington is digging in its heels: After a deficit of 5.4 percent in the 2022 fiscal year, new debt amounted to 6.3 percent in 2023. If the effects of the student loan debt cuts are included, the figure even rises from 3.9 to 7.5 percent.

The effect: the US economy surprises with positive figures. The latest leading indicators for the manufacturing and service sectors, which are key indicators of economic performance, have recently been revised upwards and are now only just below or above the all-important 50-point mark. The still resilient labour market has also silenced the voices of recession. “We are now also seeing higher construction activity on the real estate market due to the banks’ recently less restrictive lending policies,” says Gerlinger.

The US presidential election in November could have consequences for the future development of the US economy. According to polls, neither Trump nor incumbent Joe Biden currently enjoy a high level of popularity. “The chances of Trump being elected are certainly high,” says Gerlinger. “An election victory for him could lead to a further increase in national debt, especially as he has already announced tax cuts in the event of his election victory.” Other fiscal policy measures can also be expected, which should boost the domestic economy in line with the motto “America First”.

What does this mean for the stock market? The markets have already performed well in recent weeks, driven in particular by large technology stocks. “This hype appears to be sustainable, following the publication of very positive quarterly results,” says Gerlinger. In addition, growth stocks in particular are likely to benefit greatly from the interest rate trend. “We also expect a positive trend across the entire market by the end of the year.” A reaction of the stock markets to the outcome of the US presidential election cannot be ruled out at the end of the year. Stocks that are directly linked to the US domestic economy in particular could benefit from Trump’s election.

In contrast to equities, Gerlinger is cautious about corporate bonds: “The yield level is no longer attractive. High yields are of limited interest, even if a lot of optimism has already been priced into this segment.”