Investing.com – A victory for Donald Trump and Republican control of Congress, the so-called red wave, would likely lead to higher Treasury yields, making the Federal Reserve more hawkish and lifting energy and financial stocks, while a victory for Kamala Harris would hold 10-year yields hover around 4%, extending ai-powered stock rally.
“We believe that a Trump victory, particularly if accompanied by Republican control of Congress, would likely result in fiscal expansion and looser financial regulation,” Capital Economics said in a note on Monday, adding that this scenario “could drive up Treasury yields and provide a near-term boost to U.S. stocks.”
A Trump victory could see 10-year Treasury yields rise to around 4.5-5% by the end of 2025, driven by expectations of higher budget deficits and a more hawkish Federal Reserve, he added. Capital Economics.
However, a more hawkish Fed will not immediately mark the end of stocks' bullish run, as Trump's expected policy measures, including fiscal expansion and deregulation, could provide a temporary boost to US stocks, particularly benefiting US stocks. sectors such as energy and finance.
By contrast, a Kamala Harris victory would likely result in a continuation of current policies under President Joe Biden's regime, Capital Economics suggests, with 10-year Treasury yields expected to remain around 4 %. Preventing a rise in Treasury yields would help extend the ai-fueled rally in stocks, as Harris is seen as more likely to maintain the status quo in terms of fiscal and monetary policy.
A Trump victory would likely strengthen the dollar by 5% to 10% next year, Capital Economics says, but those gains could be limited as concerns about fiscal sustainability could weigh on the currency.
But bets on the implications for markets could be off the table if Trump's presidency results in a full-blown trade war, particularly with China. Meanwhile, for Harris, the main risk includes the possibility of more progressive policies if Democrats gain control of both chambers of Congress.
With just days to go until the US election on November 5, current polls suggest that Trump has a slight lead over Harris. Ultimately, the impact of a Harris or Trump victory on markets in the days after the election “will depend on the extent to which different outcomes are already priced in…” Capital Economics added.
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