With the results of the Republican primary in South Carolina finalized, Trump's goal of winning the Republican presidential nomination seems within reach. At present, in various polls and gambling markets, Trump's approval rating has always been ahead of current US President Biden, and the possibility of Trump winning the presidency again seems to be increasing.
Recently, Kaitou Macro released a report stating that if Trump wins this year's election and becomes the President of the United States again, it will put pressure on the US macro economy. However, the institution believes that in the current market's enthusiastic pursuit of artificial intelligence technology, the US stock market can still withstand macroeconomic headwinds and continue to rise in the next two years.
Trump 2.0 will suppress the US macroeconomy
According to a recent report from Kaitou Macro, if Trump is truly elected as the 47th President of the United States, it may have a significant impact on the main macro factors that investors are most concerned about - inflation, interest rates, and the US dollar: during Trump's 2.0 tenure, all three indicators may rise, which will ultimately put pressure on US stock prices.
"We believe that Trump does not have much room to repeat the measures he took to boost the stock market during his first term - namely fiscal expansion and tax cuts; instead, we believe that the most likely policy to affect the market this time is to escalate trade frictions and potentially impose universal tariffs on US imports," said James Reilly, a market economist at Capital Economics.
Earlier this month, Trump stated that if he is re elected, he will consider imposing a high 60% tariff on Chinese goods. This will far exceed the tariffs implemented by Trump in 2018, not only disrupting global trade but also potentially offsetting many of the progress made by the Federal Reserve in fighting inflation.
"His tariff proposal may trigger a rebound in inflation, which may persuade the Federal Open Market Committee (FOMC) to raise interest rates," Riley predicted. "Therefore, although the reasons for the rise in inflation this time will be different (from concerns about expansionary fiscal policy to tariffs), we believe that Trump's victory will once again push up the yield of US treasury bond bonds."
Riley predicts that if Trump fulfills his tariff commitments, it will reduce US GDP by 1.5% and harm corporate profits. In addition, the US Congress may not want Trump to implement fiscal expansion plans like he did during his first presidential term, and Trump's second term is expected to see the US dollar rise, which will pose another unfavorable factor to stock prices as it will make export products more expensive.
Reilly said, "If Trump's tariff policies prompt the Federal Open Market Committee (FOMC) to tighten policies again and/or trigger a broader trade war, disrupt global economic growth and stimulate safe haven demand for the US dollar, then Trump's victory may lead to the US dollar remaining strong for a longer period of time, or a significant rise from now on."
US stocks may still perform very well
Although Kaitou Macro has listed various unfavorable factors that Trump's presidency during the 2.0 era may bring to stock prices, the institution is not pessimistic about the prospects for the US stock market.
They expect that even during Trump's second term, the US stock market will perform well, and may even perform very well, as the market's enthusiasm for artificial intelligence hype will outweigh all these macro level concerns mentioned above.
Macro analysts from Kaitou stated:
Our optimistic forecasts for the stock market in 2024 and 2025 are based on the view that the hype about artificial intelligence will continue to fuel the stock market foam. We believe that the rise of risk-free discount rate or the blow to GDP is not enough to burst the foam.
"Therefore, if Trump wins, we tend to only slightly lower the S&P 500 index's forecast for the end of 2025 to 6500 points."