Assessment of Trump’s first week in charge of the US and its impact on the markets
The markets have reacted positively to the arrival of Donald Trump, marking a period of notable optimism in the stock market. In fact, flows into equities have reached historic levels in both the US and Europe. On the other hand, the business results season has started with mostly positive figures, something that has been accompanied by good macroeconomic data, such as the moderation of underlying inflation in the US, welcomed by investors. In addition, there is also a certain complacency in the markets, that is, despite the rise in long-term rates in the US, the stock markets have maintained their upward momentum; In short, when the stock market wants to go up, it goes up. In particular, the technology sector leads the increases, driven by the announcement of the Stargate project in the US, which has generated optimism in semiconductors and large technology companies, similar to the «Trump Trade» observed previously.
However, this strong rally brings risks: if the stock market rises, so do valuations. That is to say, company valuations, especially in technology, are increasingly demanding. There is a possibility that the S&P 500 could surpass 6,000 points, but managing this latest bullish phase could be difficult due to the overvaluation of certain key sectors.
Are we in a good time to invest in the American stock market now?
The equity market is at an appropriate time to maintain positions, but not to drastically increase positioning. For those who enter now, it would be more of a speculative bet, in the positive sense of speculation. It is true that some segments of the market have better valuations. Thus, the technology sector is slightly overvalued, while the value segment offers more attractive opportunities. Likewise, we consider that Europe and emerging markets have more favorable valuations compared to the US, although we must not forget that the evolution of the US market will influence the rest of the global panorama. In this context, it is most prudent to maintain current positions and enjoy this latest bullish momentum in the markets, rather than overloading portfolios with equities.
What about the European stock market? Morningstar Performance Forecasts
If the American market continues to rise, it will also boost other global markets, including non-US equities. The recent relaxation of the US bond benefits both US equities and international markets. In Europe, although the German elections generate some uncertainty, the markets are enjoying a positive moment; In just 22 days of the year, European stock markets have exceeded 5% profitability, which contributes to reducing their valuation differential with respect to the American stock market. However, absolute valuations, especially in specific sectors of the American stock market, are very demanding; However, although Europe maintains better levels, a prolonged upward stretch could also lead to tensions in its valuations. That said, as long as the S&P 500 maintains its momentum, other markets will continue to advance, although monitoring additional factors will be key. One of these factors is the dollar, which has a strong impact on markets outside the US, especially emerging ones. Its recent relaxation, driven by the moderation in tariff announcements by Donald Trump, has favored its depreciation against the euro, which is good news for international markets.
What types of equity funds do you see with the greatest opportunities for 2025?
If we focus exclusively on valuation, there are two segments of the market that have a very attractive relative valuation both in the US and in Europe: small caps – which have lagged far behind in terms of valuation and profitability compared to large companies – and the value segment. It is true that within this last segment, it is difficult to classify a specific sector as value, because within each of the sectors there are value companies and growth companies. For example, in the health and pharmaceutical sector, at Morningstar we consider Novo Nordisk a growth company, while the large European and American pharmaceutical companies have a marked value profile, so talking about the value or growth sector is complicated because companies are mixed. of all investment styles. All in all, the reality is that, in general terms, value has better prospects for revaluation than growth.
Best funds to have in the medium-term focus on fixed income
Fixed income funds, especially long-term ones, have been somewhat stressed by the rise in yields on both American and European long-term bonds. It has not been an extremely brilliant year for bond funds, but there is an opportunity in both the short and long tranches, especially if central banks are ultimately forced to relax monetary policies more than the market expects. market. For example, in the case of the US, we think that the Fed is going to lower rates more than the market expects and that offers opportunities in both the short and long tranches. It is true that the long stretch at the moment is very focused on American inflation, but we also believe that American inflation is going to be lower than the market thinks, and there are opportunities in fixed income in the medium long term (both in the US as in the euro zone). Therefore, it is a good time for fixed income, although we should not expect double-digit returns for fixed income like those we have had for variable income in this last year, but it is a good complement for portfolios in this beginning of 2025, thinking that the valuations of the stock markets at some point can cause falls in said markets; At that point I believe that fixed income can take over from equities in portfolios.