As Trump secures White House return, what comes next for markets?

Investing.com -- Following Donald Trump’s decisive victory over Kamala Harris in the US election, the financial markets now turn attention to what a second Trump administration could mean for policy and investor sentiment.

Trump’s win not only reinforces GOP control in the Senate but likely secures Republican leadership in the House as well, though final counts remain pending.

The conclusion of the election, which removes the political uncertainty and noise from the market landscape, “will be a relief, both to risk sentiment and business activity, and now stocks will begin to look forward to additional tax cuts and deregulation in a second Trump term,” according to Adam Crisafulli, founder, and president of market commentary Vital Knowledge.

The administration's policy direction is expected to favor deregulation and potential tax cuts, potentially lifting market optimism. Trump’s renewed agenda includes individual tax breaks and potentially lowering corporate tax rates further, though any adjustments are expected to be modest compared to his 2017 cuts.

While stocks are likely to “celebrate deregulation and tax cuts,” Crisafulli cautions that rising yields and tariff uncertainties could dampen the market's bullish outlook.

In addition, the S&P 500 ’s price-to-earnings (P/E) ratio is already elevated at around 22x.

Trump’s focus on tariffs has been pronounced in this campaign, potentially increasing risks for companies reliant on global trade.

Fiscal policy remains another key element. Vital Knowledge’s report highlights that while Trump may prioritize pro-growth initiatives, deficit concerns are mounting, with bond markets increasingly uneasy about fiscal sustainability.

Crisafulli outlines three potential fiscal pathways, none of which bode well for risk sentiment: either allow yields to spike, create a fiscal cliff through higher taxes and spending cuts, or rely on tariffs in an attempt to generate revenue.

Looking forward, the Fed’s upcoming rate decisions may face minimal direct influence from the election, with a cut expected on November 7. Yet, Trump’s expansionary policies combined with tighter immigration controls could influence the Fed’s longer-term approach, potentially slowing the pace of easing.

In the near term, Crisafulli notes that equities may benefit from the easing of political uncertainty and favorable seasonal trends, but the backdrop of elevated P/E ratios, rising yields, and fiscal strain suggests a complex environment.

Separately, Citi Research strategists believe that Trump’s victory would weigh on clean energy stocks due to policy risks.

“Vestas is the key bellwether, albeit priced for a high probability of a Trump victory in our view; we would highlight Nordex (ETR:NDXG ) and hydrogen names as also likely to come under pressure,” Citi highlighted.

Potential tariffs are expected to have a limited impact on most companies due to local production and pricing power, though US prices may need to increase by around 4-7% to offset tariffs.

Quality growth stocks, such as Atlas (NYSE:ATCO ) Copco AB Class A (ST:ATCOa ), with strong pricing power and local operations, are likely to outperform value names like Electrolux (ST:ELUXa ), which has lower margins and has faced tariff challenges in the past, according to Citi.

Source: Investing.com