The potential impact of former President Donald Trump's tariff policies on global markets is causing concern among investors.
UBS investment bank has conducted a detailed analysis, projecting significant repercussions for the stock market. The implementation of a 60% import tax on Chinese goods and a 10% tariff on other imports could lead to a notable decline in the S&P 500 index. UBS economists and strategists forecast that the index could drop by 11% from its recent record close of 5,792, ending next year at 5,200. By 2026, the S&P 500 is expected to decline by 2% from current levels, reaching 5,650.
The impact of these tariffs is not limited to the U.S. market. UBS anticipates that European equities will be particularly affected, with the Stoxx 600 index projected to decline by 14% by the end of next year and remain down 13% by 2026. The MSCI China index is also expected to fall by 11% by the end of 2025, with a continued decline of 7% by 2026. This scenario highlights the potential for a trade war to hinder global competitiveness and disrupt economic growth. UBS estimates that global GDP growth could slow to 2.7% in 2025 and 2.0% in 2026, compared to a baseline forecast of 2.9% for both years.
The upcoming U.S. elections and the political landscape are also influencing market expectations. UBS has outlined potential S&P price targets based on the outcomes of the elections. A Republican sweep is viewed more favorably, with anticipated benefits from corporate tax cuts and deregulation. On the other hand, a Democratic sweep could result in corporate tax rate increases, which may impact stock performance. However, this scenario could be more beneficial for European and emerging market stocks, as it would reduce the risks associated with aggressive U.S. trade policies. Currently, the political landscape is characterized by a narrow Republican control of the House and a narrow Democratic control of the Senate, with polling suggesting a slight advantage for Republicans in the upcoming elections.
Historically, U.S. stocks have performed well under both Trump and President Joe Biden. During Trump's presidency, the S&P 500 achieved an 83% return, outperforming the MSCI World Index, which gained 70% during the same period. In contrast, Biden's first 45 months in office saw the S&P rise by 59%, while the MSCI global index recorded a 45% rally. Economists generally agree that aggressive tariff policies can be inflationary and support U.S. economic growth, despite Trump's claims of promoting domestic manufacturing and job creation.
As the election approaches, investors are grappling with various concerns, including a mixed labor market, persistent inflation, and uncertainty regarding monetary policy. The potential for significant shifts in economic policy depending on the election outcome adds complexity to the investment landscape. Given the high stakes and expected market volatility, investors are closely monitoring developments in both the political arena and the broader economic environment.