With only a few days before the official inauguration of the new US President, several economic and geopolitical factors have already begun to discount the foreseeable strategic changes of the new executive. The stock market, in the sense of the S&P 500 index, recorded a modest increase of 5% in the second half of 2024, after the 22% increase in the first half of the year, which nevertheless allowed it to establish a new all-time high of 6099 at the beginning of December. With the start of the new stock market year, this slow progress has given way to some sessions of selling that could confirm the thesis that we are in a technical distribution phase that preludes a more significant correction. The EuroStoxx 50 index also recorded its annual high in April 2024 at 5121 points and since then has shown a slightly weaker lateral dynamic but similar to that of the US index. In fact, the European markets reacted negatively to the news of the electoral victory of Mr. Trump, who in his government program has placed significant emphasis on the issue of duties to be applied to European imports, even if to date the tariff increases seem to concern only Canada, Mexico and Denmark. <\/p>\n\n\n\n
It is probably a change of heart due to the fact that the introduction of duties increases inflation, and the President is very sensitive to this aspect which in part penalized the Democrats in the election campaign. The bond sector closed the year in a bearish phase induced by the rise in ten-year yields on public debt, which rose to almost 4.80%, about 120 basis points above the minimum for the year. Therefore, the US securities market seems to be headed towards discounting a significant change in the dynamics of systemic liquidity creation by both the Treasury and the FED. In fact, at the beginning of 2024, the combination of the Treasury\u2019s yield curve control through the preference given to the issuance of short-term bonds and the Fed\u2019s combination of restrictive measures more than offset by stimulus measures in the form of reverse swaps, created additional liquidity in the amount of 6 trillion dollars, equal to 15% of total US liquidity. But for this year, we can only count on about 2 trillion of additional liquidity, because the Fed has almost exhausted its technical potential and the new Treasury Secretary appointed by Trump, Scott Bessent, has already declared that he will return to favoring the issuance of medium\/long-term government bonds over bills, causing an increase in consolidated yield rates. <\/p>\n\n\n\n
Remaining in the fixed income area, this means a further significant increase in the duration premium component of the yield offered by public debt. To date, 80% of the recent increase in the 10-year rate comes from the increase in this premium from the previous low of 3.61%, when it was negative by 150 basis points, while now it is likely that it will be completely neutralized, adding another 70 basis points to the yield of the 10-year which would rise to 5.5%. The premium is rising significantly because the market is pricing in higher rates due to the expected accommodative fiscal policy of the new Administration which implies greater debt issuance and the maturity in 2025 of a large amount of treasury bills which will be replaced by bonds. This expected rate dynamic favors the dollar which has already appreciated after the election result, but a rising dollar tends to reduce global systemic liquidity, as the monetary authorities of other countries must limit credit stimulus to defend the parity of their currencies with respect to the greenback. The most emblematic example of this situation is China, which would need to stimulate its economy, struggling with overcapacity and excessive debt, but during the last month the PBOC, the central bank, was forced to drain 1.9 trillion RMB (250 billion dollars) from its money market, to defend the exchange rate with the dollar. To overcome this contingent situation, the government has announced a fiscal stimulus program, but in the meantime the stagnation of the second largest economy in the world risks penalizing global growth in 2025 and therefore the prices of raw materials, while waiting for the only intervention that can truly solve the problem, the devaluation of the Yuan. <\/p>\n\n\n\n
Therefore, the stock market year that has just begun will require a more opportunistic and short-term investment tactic, because the bullish phase of the last two years has been almost entirely supported by the creation of surreptitious liquidity, which is now disappearing. The lateral phase that characterizes the dynamics of the indices suggests particular attention to sector rotation of demand preferences, which could start to neglect cyclicals, energy, with the exception of nuclear, luxury and financials in Europe where the cost of money appears to be oriented towards falling more than in the US, reducing the interest rate gap in favor of financial intermediaries. Defensives would instead be favored, including pharmaceuticals coming off sharp declines, the various consumer sectors in the broadest sense of the term, in particular on the American stock markets, given that the economic situation shows no signs of cooling, and in general the underlying trend favorable to the various technological fields persists, in particular Artificial Intelligence and cyber security. A sector that deserves an in-depth analysis that also allows us to bring the discussion to geopolitical spheres, is that of European automotive production, coming off a 2024 that was nothing short of disastrous in terms of the stock market. In fact, the expectations of a pragmatic change in terms of containing emissions after the results of the European elections in June were totally disappointed, thanks to political agreements that disavowed the result of the polls. The short-sighted and dogmatic regulatory approach of the Brussels executive, totally detached from the economic context of reference, had the serious consequence of pushing the German economy into a prolonged phase of technical recession that also led to the fall of the government and to calling political elections in February. <\/p>\n\n\n\n
It seems logical that with a new US President substantially opposed to the measures for decarbonizing the production system, the new leaders that will emerge from the European elections will be forced to face reality and come to terms with the market economy. That the world’s largest car manufacturer, the German Volkswagen, should be listed on the stock exchange with little more than the liquidity of its treasury would seem absurd, but despite the compelling valuations, it is still necessary to invest very carefully in the entire sector, because one cannot exclude a negative political obstinacy with demagogic<\/p>\n\n\n\n
purposes that would lead to the collapse of the entire sector within two years. The other strategic area that concerns the car industry of the Old Continent is represented by the Chinese situation, as all the major European producers have plants in the Asian giant, so if an extreme decision were to be made, such as the devaluation of the yuan, the consequent recovery in internal demand would also favor the foreign brands present. That the change of tenant in the White House has a fundamental geopolitical value can be easily deduced from the recent developments regarding the ongoing conflicts in Ukraine and Palestine, where truce agreements seem imminent that could subsequently lead to their end. Unfortunately, it should not be surprising that these agreements are being postponed day after day, with dramatic consequences, only because after January 20, the credit would go to the new Republican Administration, while within that period the success would be attributed to the Administration in office. The end, even temporary, of these conflicts could also have short-term stock market consequences, in the sense that the war economy components that have supported Western economic trends since February 2022 would disappear, requiring a reduction in the profit estimates of the sectors that have benefited most, while it will be a matter of identifying the sectors that will instead be favored by the enormous allocation planned for the reconstruction of the two war theaters, which could exceed a trillion dollars.<\/p>\n","protected":false},"excerpt":{"rendered":"
With only a few days before the official inauguration of the new US President, several economic and geopolitical factors have already begun to discount the foreseeable strategic changes of the new executive. <\/p>\n","protected":false},"author":1,"featured_media":5793,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,43],"tags":[17,15,16,18],"class_list":["post-5864","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markobs","category-observer-2025","tag-bravoadvisory","tag-market","tag-observer","tag-switzerland"],"_links":{"self":[{"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/posts\/5864","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5864"}],"version-history":[{"count":1,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/posts\/5864\/revisions"}],"predecessor-version":[{"id":5865,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/posts\/5864\/revisions\/5865"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=\/wp\/v2\/media\/5793"}],"wp:attachment":[{"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5864"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5864"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bravettinicola.ch\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5864"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}