A second term for Donald Trump, dubbed “Trump 2.0,” could shake up global stock and bond markets, according to a recent report by LLama Research. The report anticipates a volatile economic landscape driven by Trump’s proposed agenda, which includes hefty government spending, tax cuts, and rising deficits. These policies, the report suggests, could push bond yields upward and create turbulent conditions within both equity and bond markets.
While Trump’s policies might initially inject a dose of short-term optimism into the stock market, the report predicts long-term challenges for investors. Increased spending on areas like defense, energy, and artificial intelligence, coupled with substantial tax cuts, could lead to inflation. This inflationary pressure would likely manifest in the bond market, where rising deficits could drive up yields. Moreover, the report suggests that the dollar’s dominance might be challenged by the combination of high debt levels and inflationary pressures, potentially weakening the currency over time.
The report highlights a shift in focus from Trump’s first term, which centered on tariffs and trade deficits, particularly with China. In his potential second term, the focus is expected to shift toward managing currency dynamics, reflecting a more complex global economic landscape. The report predicts that Trump’s fiscal policies could add as much as USD 7.5 trillion to the U.S. deficit, significantly increasing government debt and raising risks for the bond market. This surge in U.S. bond yields could attract capital from Europe, pressuring European central banks to raise interest rates to support their currencies. Rising U.S. yields could ripple through global markets, potentially triggering tighter monetary policies in other countries as they grapple with the inflationary spillover from the U.S. economy.
In conclusion, LLama Research predicts a complex and potentially turbulent economic environment if Trump secures a second term. While the report anticipates some short-term gains in equities, it also warns of inflation and high bond yields, which could present significant challenges for global markets.
