They have projected one more quarter-point cut this year, in December, and an additional full point of reductions in 2025, according to the median estimate released in September.
“The Fed is still likely to cut by 25 basis points at Thursday’s meeting and likely to cut again in December,” said Yung-Yu Ma at BMO Wealth Management. “As we move into 2025, we believe it’s possible that we only see two or three cuts for the year depending on the mix of policy and growth that plays out.”
The makeup of Congress will also be key going forward.
Republicans won control of the U.S. Senate amid a slew of victories by allies of Trump, giving the GOP powerful leverage in high-stakes tax and spending battles next year. Meantime, Democrats needs a net gain of just four House seats to wrest the slim majority from Republicans.
But with several key races still too close to call — particularly in notoriously slow-counting California — it could be days before it’s clear which party has the majority.
“Assuming the House goes Republican, we expect that a Red Sweep outcome will play out in a similar fashion to the 2016 playbook but to a lesser degree given a more mature economic backdrop and higher equity valuations,” said Jeff Schulze at ClearBridge Investments. “Business animal spirits could be rekindled once again from Trump’s pro-business approach.”
Schulze says that which could lead to a more robust capital expenditures and investment environment.
A more favorable corporate tax regime, full extension of the Tax Cuts and Jobs Act, and a lighter regulatory touch should outweigh the potential headwinds from increased tariffs and reduced immigration on corporate profits.
“We expect cyclical leadership to continue in the coming months as the market anticipates stronger economic growth and better earnings delivery from this cohort than is currently priced,” Schulze noted.
“Favorable macro drivers still dominate, and the prospect of a Republican sweep and lower taxes is adding to the market enthusiasm,” said Ma at BMO.
“That may get tempered in the coming weeks by more details regarding tariff policy or a continued rise in long-term Treasury yields, but for the past two years we’ve said that the environment is favorable for risk-taking and that remains the case,” he added.
In addition, the potential for extension of personal tax cuts under a Republican sweep are only marginally positive for the equity markets, he noted.
“Corporate tax cuts are much more significant, and while there have been promises to do more on this front, they come with unclear stipulations, including requirements that companies keep manufacturing operations in the U.S.,” Ma concluded.
“Markets hate uncertainty and now that the election is officially over, stocks are soaring today,” said Ryan Detrick at Carson Group.
“Optimism over tax cuts, a still dovish Fed, and a potentially better economy are part of it, but the reality is the economy has been quite solid all year, so this really isn’t anything new. Back to your regularly scheduled bull market is how we see it,” Detrick noted.
At Ameriprise, Anthony Saglimbene says animal spirits through year-end could push major averages higher as the overhang of the election is removed and investors look to put excess cash to work in equities
“Finally, U.S. stocks may see tailwinds from not only the election results but a retreat in volatility hedging, corporations moving out of their buyback blackout periods as the earnings season winds down, and strong fourth-quarter seasonality factors (particularly in election years).”
The surge in small caps suggests the performance of the U.S. stock market will broaden from the big-tech cohort following Trump’s re-election, according to Vincent Juvyns at JPMorgan Asset Management.
Chris Senyek at Wolfe Research says he remains bullish on stocks into year-end.
“With Donald Trump winning the 47th Presidency of the United States, we believe that markets will heavily favor financials, US-based industrials (transports), energy, and crypto today and into year-end, he said. “We think more offensive tech outperforms as well with semis outperforming. By style, we’d own value, equal weight, small-cap and year-to-date laggards.”
Markets, Cryptocurrencies & More
- The S&P 500 rose 2.4% as of 1:51 p.m. New York time.
- The Nasdaq 100 rose 2.2%.
- The Dow Jones Industrial Average rose 3.2%.
- The MSCI World Index rose 1.3%.
- The Russell 2000 Index rose 5%.
- Bloomberg Magnificent 7 Total Return Index rose 3.5%.
- Bitcoin rose 8% to $74,664.59.
- Ether rose 10% to $2,661.02.
- The yield on 10-year Treasuries advanced 16 basis points to 4.44%.
- The Bloomberg Dollar Spot Index rose 1.3%.
- The euro fell 1.8% to $1.0738.
- The British pound fell 1.1% to $1.2904.
- The Japanese yen fell 2% to 154.58 per dollar.
- The Mexican peso fell 0.7% to 20.2503.
- West Texas Intermediate crude was little changed.
- Spot gold fell 2.8% to $2,665.90 an ounce.
–This story was produced with the assistance of Bloomberg Automation.
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