The election of Donald Trump as the 47th President of the USA has already triggered significant reactions on the international financial markets. It is to be expected that at least some of these shifts in the positioning of market participants will not prove to be a flash in the pan, but will continue and probably intensify. The old truism that political stock markets have short legs could currently prove to be untrue, at least in some areas. This is mainly due to the fact that Trump has now achieved the „red sweep“, namely the political breakthrough with Republican majorities in the Senate, House of Representatives and Supreme Court.

The repositioning on the markets can be clearly recognised by the strength of the greenback, with the euro losing ground since the election. The enormous rally of the leading cryptocurrency Bitcoin to an all-time high above 88,000 dollars since the election is particularly striking. One reason for this is the future president's penchant for cryptos. Trump has even commented favourably on the ill-conceived bill by a Republican senator from Wyoming, according to which the US federal government should form a „strategic Bitcoin reserve“ modelled on the strategic oil reserve, and buy up no less than 5% of all Bitcoins already produced.

On the other hand, Bitcoin has now taken on an important role when it comes to moving assets out of the country as a kind of safe haven currency – a factor that should not be underestimated in view of the increasing political polarisation in the US.

As far as equities are concerned, Trump wants to create a greatly altered market environment, with punitive tariffs and incentives that weaken geo-economic rivals such as China – but also Europe – and, in particular, bring about a re-industrialisation of the USA.

US equities should benefit from this - and also from promised tax cuts – primarily at the expense of European dividend stocks. Sectors such as oil and gas are also likely to benefit at the expense of renewable energies, for which Trump has shown little affection.

However, even Trump will not succeed in changing the fundamental economic conditions. High government spending on armaments, for example, combined with far-reaching tax cuts will drive up the national debt, which has already risen sharply under Joe Biden. This is likely to increase inflation in the medium term, which could tie the hands of the US Federal Reserve for further interest rate cuts, and prove to be a headwind for the economy. In the long term, a crisis of confidence in US Treasuries cannot even be ruled out, which could drive yields on US government bonds significantly higher.

Furthermore, the economic realities and the regulatory environment in the USA offer large corporations significantly more room for manoeuvre at the expense of smaller companies, and Trump can do little to change this, even if he wanted to. In this respect, it is rather unlikely that there will be a long-lasting and sustainable upward run for small caps.

That leaves the geopolitical risks, which have been somewhat ignored on the markets, but which remain hugely significant. During the election campaign, Trump repeatedly stated that he wanted to end wars quickly, particularly the war in Ukraine. However, Trump has filled key foreign policy positions with avowed Iran hawks. Should the war in the Middle East escalate, there is a considerable threat to the West's energy supply and thus a new price shock for oil and gas, which would also plunge other financial markets into crisis.

The future US ambassador to Israel, Mike Huckabee, recently even supported the annexation of the West Bank by Israel, when speaking on the country's army radio station. Other candidates for high positions in the Trump administration have spoken out in favour of US participation in a far-reaching attack on Iran. If Trump aligns US foreign policy even more strongly with Israel's interests, the risk of a major war in the Middle East, and thus the disruption of oil and gas supplies to the West is likely to rise sharply again. In extreme cases, this could even lead to a global financial crisis, especially if countries such as China and Saudi Arabia were to dump their treasury holdings on the market in retaliation.