The much-anticipated U.S. presidential election has concluded, with results arriving faster than expected. In addition to securing the presidency, the Republican Party has achieved a significant political milestone by winning control of both the Senate and the House of Representatives. This consolidation of power raises critical questions about the balance of governance and the potential impact on fiscal discipline, regulatory policies, and economic strategies.

Regardless of whether you are pleased with the outcome or disappointed, it is essential that we shift our focus to the future and evaluate what these events mean for the markets and, most importantly, for your wealth and investment strategies. You can explore our detailed post-election report here or watch the recording of our live post-election discussion here.

Interestingly, while the world’s attention was fixed on the United States, political developments in Europe added their share of uncertainty. Germany, Europe’s largest economy, saw its government dissolve amid political disagreements, marking a period of transition. The scheduled election for a new government is in February 2025.

Market Buzz: Fact or Fizzle

Over recent years, both parties have embraced expansive spending, driving the national debt to unsustainable levels. While these measures have stimulated short-term growth and driven stock markets up, they underscore a growing fiscal burden that threatens long-term economic stability.

In his new term, Trump’s agenda is likely to build on his previous economic policies, with further tax cuts, increased military spending, and additional tariffs. While these measures will most likely continue to drive short-term economic activity and corporate profitability, they carry substantial fiscal risk that may exacerbate long-term challenges.

Trump’s policies could bring heightened inflationary pressures and sustain high interest rates. The U.S. dollar’s purchasing power, which has already dropped by nearly half since 2000, could erode further if the Federal Reserve is forced to maintain elevated rates to control inflation. Moreover, the interplay between fiscal expansion and tighter monetary policy could lead to a precarious balancing act for policymakers, with risks of stagflation if unemployment rises in parallel with inflation.

Despite these systemic challenges, we saw a shift in investor focus to U.S. markets after the election. On November 6, global investors injected $20 billion into U.S. equity funds, with tech stocks and Tesla reaping the most gains. Consequently, European markets—particularly Switzerland—saw declines, reflecting this reallocation. Whether a year-end rally occurs will depend on upcoming economic reports from both the U.S. and Europe. In October, U.S. inflation came in slightly up at 2.6%, with core inflation holding at 3.3%. The Federal Reserve’s “supercore” inflation measure—excluding food, energy, and housing—remains at 4.3%, even though it has notably faded from their public narrative. This persistent inflationary pressure limits the Fed's flexibility, particularly as unemployment has risen to 4.3%, a full percentage point above 2022 levels. 

In line with the market adage “buy the rumor, sell the fact,” investors appear energized by the prospects of lower taxes and enhanced corporate earnings. This sentiment could sustain positive market momentum through the end of 2024. However, Trump's planned fiscal expansion will likely add more fuel to an already overheated U.S. stock market.

We observe that U.S. stock market indices are being driven disproportionately by a handful of mega-cap companies, and markets are increasingly detached from economic fundamentals. While Trump’s policy plans are likely to drive markets higher in the near term, we do not view this trajectory as sustainable given the underlying fiscal realities. 

By contrast, Europe offers a compelling investment opportunity, with price-to-earnings ratios at 20-year lows and valuations significantly more attractive than their U.S. counterparts. Additionally, the short-term strength of the U.S. dollar presents a particularly favorable window for international diversification. For investors seeking a balanced and prudent approach to preserving and growing wealth, Europe provides a solid alternative in today’s complex market environment.

The Dollar’s Peak, the Euro’s Struggle, and the Franc’s Strength

As mentioned above, investors showed a preference for the USD after the election, driving it to a one-year high. However, saving money was not on either candidate's agenda. Taking into consideration the inflow of money into the U.S. market, an increased demand for the USD is a logical consequence. Thus, we expect the USD to lose some of its strength again over the coming year.

With German Chancellor Olaf Scholz recently dismissing Finance Minister Christian Lindner, Germany is heading for new elections. This has pressured the Euro, though a fresh government could ultimately benefit Germany and the EU, potentially strengthening the Euro in the long run.

Meanwhile, the Swiss franc’s recent weakening against the dollar doesn’t erase its longer-term resilience, as can be seen in the graph below.

The Swiss franc has long been a safe haven currency, underpinned by Switzerland’s political neutrality, economic stability, and prudent monetary policies. Historically, it has weathered global uncertainties better than most other currencies, providing a consistent store of value for investors.

Even as it fluctuates in the short term, the Swiss franc's strength lies in its ability to maintain purchasing power over time. As the U.S. grapples with rising debt and potential inflationary pressures, and the Eurozone navigates political shifts, the Swiss franc remains a dependable option for diversification and wealth preservation.

Looking ahead, we anticipate the Swiss franc to continue serving as a cornerstone for stability in portfolios, particularly for those seeking to hedge against currency volatility and inflation in the years to come.

Yields Rise, Confidence Falls: A Global Debt Story

When considering the expectations for future fiscal discipline, experts often turn to the USD 28 trillion market for U.S. government debt as a key indicator. In the aftermath of the election, yields on U.S. Treasuries increased, reflecting a sell-off in the bond market. This move signals growing skepticism among investors toward President Trump’s policies that could exacerbate fiscal deficits and inflate the already substantial national debt.

This trend is not confined to the United States. Other major economies, such as France and the UK, have also experienced bond market backlash over concerns about their fiscal discipline. In Germany, bond yields surged following the political crisis sparked by the dismissal of the Finance Minister, highlighting how political instability can quickly translate into financial market turbulence.

Globally, rising debt levels are becoming a pressing concern for investors. Many nations are grappling with the financial strain of expansive fiscal policies enacted during the pandemic, as well as increased defense and social spending. Compounding these worries, discussions are intensifying in political circles about modifying or even suspending established debt brakes. This further undermines investor confidence in long-term fiscal responsibility.

As yields climb, borrowing costs for governments rise, putting additional pressure on budgets already stretched thin. This feedback loop underscores the precarious balance many countries must strike between stimulating their economies and maintaining market trust in their fiscal policies.

Bitcoin Booms, Gold Shines: For How Long?

Bitcoin’s surge past $90k on November 13 reflects what can only be described as an extreme bull run for cryptocurrencies, with the asset class showing its characteristic tendency to swing dramatically on emotions. One of the recurring challenges with cryptocurrencies is their heavy reliance on sentiment rather than fundamentals, leading to sharp and often unsustainable price movements. Bull runs like this one create a "fear of missing out" (FOMO) effect, where investors pile in, afraid of being left behind. This emotional cycle often fuels rapid price increases, but it also sets the stage for equally dramatic corrections once the euphoria fades.

The current crypto frenzy extends beyond Bitcoin. Altcoins like Dogecoin, which rallied over 200% recently, have also seen meteoric rises. Such parabolic moves are emblematic of the speculative nature of the market, where perceived opportunities drive price action regardless of tangible utility or adoption. While some of these gains may persist, history suggests that the crypto market’s lack of maturity and susceptibility to emotion often results in significant volatility that catches overextended investors off guard.

At the same time, gold has been on a remarkable run, hitting one all-time high after another over the past year. This performance has been fueled by a new era of heightened geopolitical tensions, which have reinforced gold’s appeal as a safe-haven asset, and by reductions in global interest rates, particularly in the U.S., which have lowered the opportunity cost of holding non-yielding investments. In his election night speech, Trump promised to bring back the "Golden Age," emphasizing a thriving stock market but leaving his stance on gold unclear. If Trump’s policies succeed in pushing markets higher, gold could lose some of its appeal as a tactical investment.

While gold remains an attractive long-term asset for diversification and stability in portfolios, its recent rally reflects a shift from being a strategic allocation to a tactical play. Many investors are chasing short-term momentum rather than holding gold for its enduring value as a hedge against uncertainty. Should the geopolitical or monetary environment stabilize—or should markets continue their bullish run under Trump’s leadership—gold could see a correction. Even so, its role as a cornerstone of strategic portfolio diversification ensures its relevance, regardless of short-term fluctuations.

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