Investing.com -- As the presidential race heats up, Alpine Macro analysts suggest that a Trump victory could give equities a much-needed short-term boost.
The firm said in a note Thursday that "if Trump wins, equities will likely see a short-term boost, while bond yields would trend higher."
The optimism stems from expectations of "deregulation and lower taxes," which are anticipated to invigorate the market immediately after the election results are announced.
The analysts caution, however, that potential social unrest and legal challenges could arise from contested results.
They highlight that past market movements after the 2016 and 2020 elections serve as only partial indicators of future performance.
Under a Trump administration, concerns about higher tariffs and larger fiscal deficits loom large over U.S. Treasuries. The analysts assert that "markets aren't accurately pricing in Trump or Harris," suggesting that the market's reactions might be more dramatic than the actual policies implemented.
Alpine Macro takes a "counter-consensus view" that fears surrounding substantial tariffs and budget deficits under Trump may be exaggerated.
They argue that Trump's tariff policies will be less severe than his rhetoric suggests, stating, "His tariff rhetoric is likely far more dramatic than his policies."
They explain that the moderation could lead to financial stability, as Trump aims to avoid upsetting voters ahead of the crucial 2026 midterms.
Furthermore, Alpine Macro says foreign equities might sell-off if Trump wins, similar to the declines seen in Mexican equities in 2016.
However, the analysts believe that trade tensions, while likely to resurface, will be manageable for the U.S. economy. Ultimately, Alpine Macro argues that assessing the new administration's policy priorities will become more tangible once the election results are finalized, setting the stage for potential market shifts.