Mark Haefele, chief investment officer at UBS Global Wealth Management, shares his outlook for markets and asset allocation following US President Donald Trump's coming into power.

Tariffs dominate investors' thinking, UBS has noted – and this point became stark reality over the weekend after US President Donald Trump ordered tariff hikes on Canada, Mexico and China, and hinted at more to come for the likes of the European Union. Stock market futures linked to the Nasdaq, for example, fell sharply today ahead of the US market open as investors mulled the prospect of a trade war between major economic power blocs.

Since Trump won the US presidential election and the Republicans gained control of Congress, long-end government bond yields have increased, the dollar has strengthened, and equity markets have become more volatile, Mark Haefele, chief investment officer at UBS Global Wealth Management, has noted. Consequently, investors now need to understand the implications of potential changes in US policy. 

“Tariffs are top of mind for many investors. This is the area where the president has the most unilateral authority to alter the market consensus around continued growth and receding inflation,” Haefele said in a note at the end of January.

He believes that investors should prepare for the Trump administration to pursue aggressive tariffs. On his first day in office, the President announced and signed a flurry of executive orders and other actions. The most tangible trade-related action came in the form of a memorandum directing federal agencies to investigate and address “unfair” trade and currency policies implemented by other countries.

China’s adherence to the 2020 trade deal and the US-Mexico-Canada Agreement (USMCA) were singled out. "The scope and severity of possible tariff outcomes remains uncertain,” Haefele continued. His base case, to which he assigns a 50 per cent probability, is for the US effective tariff rate on China to rise to 30 per cent, and for China to retaliate. He expects efforts to limit transshipments, protect US technology interests, and impose tariffs on some EU exports.

Haefele is also monitoring for a risk case, which could include 10 to 20 per cent universal tariffs on all US goods imports, a larger tariff of around 60 per cent on China, or sustained, broad, and large tariffs against Mexico and Canada. This would have a more negative impact on markets and the economy. These tariffs are a key determinant in his broader investment scenarios. Haefele believes that the most likely outcome (50 per cent probability) is for growth despite tariffs. With US growth momentum being currently strong, he believes that the US Federal Reserve will cut interest rates by 50 bps in 2025. He sees a limited overall macroeconomic impact from an effective tariff rate of 30 per cent on direct imports from China.

Asset allocation
Believing that the risk-reward for equities is attractive, although investors should prepare for near-term tariff-related volatility, Hafaele favors US equities. He expects around 10 per cent upside for US stocks over the balance of 2025 thanks to solid economic growth, artificial intelligence (AI) tailwinds, and gradually falling yields.

In fixed income, Hafaele favors high grade and investment grade bonds. In his base case, he expects the 10-year Treasury yield to fall to 4 per cent by the end of 2025 as growth and inflation gradually slow, and as the Fed cuts rates. He expects the euro/dollar to rise to 1.06 by the end of 2025, but given the possibility of near-term volatility, he likes to harvest volatility in major currency pairs, rather than taking strong directional views. Haefele also sees upside to gold both in his base case and in his bear case risk scenarios.

Haefele believes that the coming weeks are likely to see volatility in markets, so he re-emphasized the importance of diversification. But while the path ahead may be uncertain, he sees opportunities for investors who are well prepared and adaptable.

Ninety One, an Anglo-South African asset manager, and Luxembourg-headquartered multi-asset manager Candriam, a subsidiary of New York Life, are also positive on US equities and gold in 2025. See more commentary here.