Here’s to a promising year 2025…
Key points at a glance
-
US Economy and Interest Rates: The US economy is growing robustly (1.9-2.5% for 2024) and inflation will decline to about 2%.
-
Financial Markets and Exaggerations: Market participants are overreacting; these fluctuations create opportunities, especially in bonds and equities.
-
Trump and Economic Policy: Trump’s second term will be focused on growth. Tariffs and tax cuts support the economy.
-
Asset Classes and Strategy: The S&P 500 has growth potential (up to 10%). The currency strategy neutralises US dollar risks, and exaggerations are used as investment opportunities.
Dear Reader,
The US is at the centre of events. Interest rates have recently risen sharply. However, the initial political guidelines of the upcoming government are harbingers of a new policy that will lead to interest rate cuts.
Bonds – Inflation and Growth
Continued growth in US GDP is a goal that Trump wants to accelerate with lower interest rates. This is where the Fed comes into play: rate cuts at the short end could further stimulate the economy. However, the central bank’s independence will be put to the test as the White House is likely to exert pressure.
At the long end, stimulus could also come from longer-term interest rates not rising further: Punitive tariffs and planned expulsions appear to be less inflationary than feared. After the rapid rise in interest rates in recent months, this suggests that interest rates are more likely to decline. All in all, we expect inflation to fall and approach the 2% target.
A lower-than-expected budget deficit argues for falling interest rates. This slows the growth of government debt and reduces the need for new issuance. Let’s be clear: US interest rates will fall in the longer term: at the short end because of the Fed and at the long end because of lower inflation expectations and a reduced supply of government bonds.
For all these reasons, we are invested in 10- to 30-year US bond futures and expect interest rates to fall.
Equities – Growth Engine USA
We see the S&P 500 at 6,300 to 6,500 points – a gain of 5 to 10%. The Republicans, emboldened by their election victory, are doing everything they can politically to stimulate the economy. And Trump? He’s doubling down in the second round. He has promised it – and if anyone can master the art of negotiation… With his hand-picked team, he will do whatever it takes to achieve his goals. The script is written, let the show begin!
Currencies – No Sustained Strengthening of the US dollar
Populist campaign rhetoric is having a positive impact on the US dollar. Added to this are China’s wait-and-see attitude, the escalation in Ukraine and the combination of economic stagnation and political instability in Europe. We have hedged our dollar exposure. The strength seems exaggerated – any one of these factors could quickly shake the greenback’s robustness. Once these exaggerations are over, we will reduce our hedge.
Trump Needs Low Interest Rates
The Republicans have a firm grip on the USA. They have the new president and dominate both houses of Congress. The hotly debated Trump reflation trade was a first taste of what could come. What can we expect after the inauguration?
The starting point: US real interest rates are high and slowing down the economy too much – an obstacle to the new president’s plans. He needs low interest rates like an engine needs oil. Europe is increasingly caught in the crossfire: economically trapped between the superpowers of the US and China, politically weakened by the dysfunctional Franco-German axis. For Trump, the shrewd dealmaker, it’s a perfect opportunity. He knows the other side’s weaknesses and uses them to get the maximum out of it.
The ECB will have to continue to support the economy by cutting rates; the Fed is in a more comfortable position: it can act, but it doesn’t have to. Moreover, Trump’s second term is likely to be more strategic, with advisors even more focused on the economy.
Tariffs on imports are expected to hit anyone who produces or buys too little in the US – but not with full force and not in the long term. As with many of Trump’s campaign promises, implementation will take time. Programmes such as additional tax cuts are unlikely to be put in place before 2026.
Nevertheless, Trump’s announcements should be taken seriously. They are bargaining chips to secure maximum benefits for the US. Financial markets have long priced in this course.
Exaggeration and Extremes
By the end of 2024, extremes dominate markets. Populist rhetoric fuels fears of inflation and debt. Expectations of interest rate cuts have fallen drastically – from ten to four steps by the end of 2025. A rollercoaster ride that showcases the typical exaggeration of markets. This is precisely where the opportunity lies: in recognising and exploiting these exaggerations.
We expect the US economy to grow between 1.9% and 2.5% in 2025. The tariff war could cost up to 0.7 percentage points – even so, a solid plus of 1.2 to 1.8% would remain, far better than the stagnating EU.
Best regards,
Luca Pesarini
Please contact us at any time if you have questions or suggestions.
ETHENEA Independent Investors S.A.
16, rue Gabriel Lippmann · 5365 Munsbach
Phone +352 276 921-0 · Fax +352 276 921-1099
info@ethenea.com · ethenea.com
This is a marketing communication. It is for information purposes only and provides the addressee with guidance on our products, concepts and ideas. This does not form the basis for any purchase, sale, hedging, transfer or mortgaging of assets. None of the information contained herein constitutes an offer to buy or sell any financial instrument nor is it based on a consideration of the personal circumstances of the addressee. It is also not the result of an objective or independent analysis. ETHENEA makes no express or implied warranty or representation as to the accuracy, completeness, suitability, or marketability of any information provided to the addressee in webinars, podcasts or newsletters. The addressee acknowledges that our products and concepts may be intended for different categories of investors. The criteria are based exclusively on the currently valid sales prospectus. This marketing communication is not intended for a specific group of addressees. Each addressee must therefore inform themselves individually and under their own responsibility about the relevant provisions of the currently valid sales documents, on the basis of which the purchase of shares is exclusively based. Neither the content provided nor our marketing communications constitute binding promises or guarantees of future results. No advisory relationship is established either by reading or listening to the content. All contents are for information purposes only and cannot replace professional and individual investment advice. The addressee has requested the newsletter, has registered for a webinar or podcast, or uses other digital marketing media on their own initiative and at their own risk. The addressee and participant accept that digital marketing formats are technically produced and made available to the participant by an external information provider that has no relationship with ETHENEA. Access to and participation in digital marketing formats takes place via internet-based infrastructures. ETHENEA accepts no liability for any interruptions, cancellations, disruptions, suspensions, non-fulfilment, or delays related to the provision of the digital marketing formats. The participant acknowledges and accepts that when participating in digital marketing formats, personal data can be viewed, recorded, and transmitted by the information provider. ETHENEA is not liable for any breaches of data protection obligations by the information provider. Digital marketing formats may only be accessed and visited in countries in which their distribution and access is permitted by law. For detailed information on the opportunities and risks associated with our products, please refer to the current sales prospectus. The statutory sales documents (sales prospectus, key information documents (PRIIPs-KIDs), semi-annual and annual reports), which provide detailed information on the purchase of units and the associated risks, form the sole authoritative and binding basis for the purchase of units. The aforementioned sales documents in German (as well as in unofficial translations in other languages) can be found at www.ethenea.com and are available free of charge from the investment company ETHENEA Independent Investors S.A. and the custodian bank, as well as from the respective national paying or information agents and from the representative in Switzerland. The paying or information agents for the funds Ethna-AKTIV, Ethna-DEFENSIV and Ethna-DYNAMISCH are the following: Austria, Belgium, Germany, Liechtenstein, Luxembourg: DZ PRIVATBANK S.A., 4, rue Thomas Edison, L-1445 Strassen, Luxembourg; France: CACEIS Bank France, 1-3 place Valhubert, F-75013 Paris; Italy: State Street Bank International – Succursale Italia, Via Ferrante Aporti, 10, IT-20125 Milano; Société Génerale Securities Services, Via Benigno Crespi, 19/A - MAC 2, IT-20123 Milano; Banca Sella Holding S.p.A., Piazza Gaudenzio Sella 1, IT-13900 Biella; Allfunds Bank S.A.U – Succursale di Milano, Via Bocchetto 6, IT-20123 Milano; Spain: ALLFUNDS BANK, S.A., C/ Estafeta, 6 (la Moraleja), Edificio 3 – Complejo Plaza de la Fuente, ES-28109 Alcobendas (Madrid); Switzerland: Representative: IPConcept (Schweiz) AG, Münsterhof 12, Postfach, CH-8022 Zürich; Paying Agent: DZ PRIVATBANK (Schweiz) AG, Münsterhof 12, CH-8022 Zürich. The paying or information agents for HESPER FUND, SICAV - Global Solutions are the following: Austria, Belgium, France, Germany, Luxembourg: DZ PRIVATBANK S.A., 4, rue Thomas Edison, L-1445 Strassen, Luxembourg; Italy: Allfunds Bank S.A.U – Succursale di Milano, Via Bocchetto 6, IT-20123 Milano; Switzerland: Representative: IPConcept (Schweiz) AG, Münsterhof 12, Postfach, CH-8022 Zürich; Paying Agent: DZ PRIVATBANK (Schweiz) AG, Münsterhof 12, CH-8022 Zürich. The investment company may terminate existing distribution agreements with third parties or withdraw distribution licences for strategic or statutory reasons, subject to compliance with any deadlines. Investors can obtain information about their rights from the website www.ethenea.com and from the sales prospectus. The information is available in both German and English, as well as in other languages in individual cases. Explicit reference is made to the detailed risk descriptions in the sales prospectus. This publication is subject to copyright, trademark and intellectual property rights. Any reproduction, distribution, provision for downloading or online accessibility, inclusion in other websites, or publication in whole or in part, in modified or unmodified form, is only permitted with the prior written consent of ETHENEA. Copyright © 2024 ETHENEA Independent Investors S.A. All rights reserved. 29/11/2024