Sell any rally in US stocks if election results in a Republican sweep, Citi says

Investing.com -- In a note Wednesday, Citi analysts warned investors to tread cautiously, advising them to sell into any rally in U.S. stocks if the upcoming presidential election results in a Republican sweep.

"We are inclined to lighten into any post-election rally," Citi stated, noting that a Trump victory combined with Republican control of Congress introduces heightened fundamental uncertainty for the S&P 500 .

While the election outcome remains tight, Citi believes expectations have swung toward former President Donald Trump in recent weeks.

"National polling points to a close race," Citi noted, but added that "PredictIt data has swung in favor of ex-President Trump over the past month," with key swing states shifting in his favor. Senate polls also indicate the possibility of a modest Republican majority.

Citi remains skeptical of Trump's revised policy platform, including his adjustments to tariffs and taxes. Despite some targeted changes, the analysts continue to see these policies as posing risks to U.S. equity fundamentals.

The potential influence of Elon Musk, now advising Trump, also raises questions. Citi noted, "While premature to determine the scope (or reality) of a Department of Government Efficiency, the Musk influence is an interesting step in addressing government spending and the Federal deficit," the bank stated.

The analysts also cautioned that while U.S. equities have performed well this quarter—led by financials and technology stocks—it is hard to attribute the gains solely to election sentiment, given other macroeconomic factors and strong Q3 earnings.

Citi concludes that the market "continues to look fully valued," making a cautious approach prudent in the event of a Republican sweep.

They concluded: "Given the fundamental uncertainty we expect in a Trump + red sweep scenario, we are inclined to lighten into any post-election rally. For Harris + split, we expect a negative sentiment impact from current, which may present a buying opportunity."

Source: Investing.com