On Wednesday Eastern Time, after the US election situation was settled, the three major stock indexes in the US stock market hit a historic high, with the Dow Jones index recording its largest daily increase since 2022, and the S&P 500 index also achieving its best election day performance in history.
Wall Street analysts say that the market is digesting the positive factors of Trump's return to the White House. Based on Trump's previous promises of tax cuts and regulatory easing, it may bring more positive growth policy prospects for American companies.
However, analysts also caution that Trump's return is likely to lead to a resurgence of inflation in the United States, which will limit the Federal Reserve's room for interest rate cuts and pose a long-term negative threat to the US stock market.
The US stock market is digesting the "positive" factors of the election
Drew Pettit, Citigroup's US stock strategist, said in an interview that the market's positive response to Trump's victory was "expected," partly due to the election being largely "one-sided. He added that when you observe market reactions, you will find that "many Trump trades are leading today
He added that the market is currently reflecting "positive news rather than negative news". Pettit believes that Trump's previously promised relaxation of regulations and tax cuts are a "huge driving force" for domestic oriented American businesses.
US stock futures rose as the election results were announced. In our basic forecast, we expect the S&P 500 index to rise to 6600 points by the end of 2025, up nearly 15% from current levels. This is due to our moderate economic growth, lower interest rates, and continued structural push for artificial intelligence in the US, "said Solita Marcelli, Chief Investment Officer of UBS Global Wealth Management Americas.
He pointed out that the Trump administration's reduction of corporate taxes and/or relaxation of regulations on the energy and financial sectors may provide additional support
Analysts at Janus Henderson Investors stated in a report that "Trump is seen as supporting lower corporate tax rates, deregulation, and industrial policies that are conducive to domestic growth, all of which could provide more stimulus to the US economy and benefit risk assets
Kurt Reiman, Head of Fixed Income and Head of Election Observations at UBS Wealth Management in the Americas, said, "With the arrival of the next Congress and the next administration, the US economy is in a good state, and as uncertainty is eliminated, the stock market also reflects this
There are also negative risks present
But as the US stock market rises, many analysts also remind that Trump's return brings more than just positive news.
Citigroup's Pettit said that while the US stock market is rising, there is also a negative side: "When we really think about what is happening outside the stock market today - interest rates will rise. In the long run, if interest rates continue to rise, we believe this will limit the fair value of the stock market, including small cap stocks
At present, the market's reaction is logical, but what I want to say is that the market reflects more positive news than negative news
David Kelly, Chief Global Strategist at JPMorgan Asset Management, also said, "If Trump can fully implement his agenda, it means that the deficit will increase, taxes will decrease, and inflation will rise due to tariffs. Rising inflation and deficit should push up long-term interest rates
Nomura Securities economists predict that after Trump's return, "we now expect the Federal Reserve to only cut interest rates once in 2025, and then keep policy rates unchanged until the actual inflation shock caused by tariffs passes
The Federal Reserve will announce its latest interest rate decision on Thursday. Currently, Wall Street analysts generally predict that the Federal Reserve will lower its benchmark interest rate by 0.25 percentage points.