Donald Trump’s potential victory in the 2024 US Presidential election could lead to a rise in long-term U.S. Treasury yields, according to Edmond de Rothschild Asset Management strategists. This, in turn, could result in a fall in equity prices, as investors seek safer havens in the face of heightened economic uncertainty.
Trump’s proposed policies, including imposing hefty tariffs on imports, especially from China, could fuel inflation. These tariffs, if passed on to consumers, would increase prices and potentially lead to economic instability. Additionally, his immigration plans, aiming to deport criminals and encourage the return of millions of immigrants, could put pressure on the US labor market, potentially leading to a worker shortage.
The potential for such economic upheaval has already begun to impact markets. Following a recent debate between Trump and President Joe Biden, ten-year U.S. Treasury yields surged to over three-week highs, nearing 4.5%, driven by increasing market anticipation of a Trump victory.
“When the odds of Trump being elected got higher suddenly, the risk pricing from the markets was immediate,” said Jacques Aurelien Marcireau, co-head of equities at Edmond de Rothschild.
The strategists at Edmond de Rothschild caution that even in a bullish fixed income environment, the long end of the U.S. yield curve remains less bullish due to the “U.S. political risk premium.”
This potential for rising bond yields and falling stock prices highlights the significant impact a Trump victory could have on the US economy and financial markets. Investors are already taking note of the potential risks and are adjusting their portfolios accordingly.