Investing.com -- Donald Trump has the U.S. presidential election, and investors are now focusing on the implications for fiscal policy, trade, immigration, and deregulation under his administration.
In notes on Wednesday, analysts from Bank of America and Morgan Stanley (NYSE:MS) highlighted economic shifts that may impact markets.
The future of fiscal policy remains uncertain, largely dependent on whether Republicans gain control of the House of Representatives. Bank of America notes that a Republican sweep could lead to a "more expansionary" fiscal policy, which may involve extending key tax cuts under the Tax Cuts and Jobs Act (TCJA).
However, a divided government would require bipartisan agreement, potentially limiting deficit growth.
Morgan Stanley emphasizes that control of the House is critical, as it will influence how market expectations evolve, especially for U.S. Treasury yields.
Both banks anticipate an immediate shift towards higher tariffs, with BofA projecting that tariffs on Chinese imports will likely increase “in short order.”
Morgan Stanley agrees, noting that trade actions could extend to Europe and Mexico as well. Unlike Trump’s first term, analysts suggest that tariffs could take priority over fiscal stimulus, potentially challenging economic growth while reinforcing a “strong dollar” policy.
"The former president has stated a preference for a weaker US dollar. But we think the policies Trump has advocated for likely lead USD higher, as it did overnight," said the bank. "This fundamental rationale is due to increased tariff risk, geopolitical uncertainty, and expectations for a more
expansionary fiscal agenda."
On deregulation, BofA sees a likely reduction in regulatory burdens, especially in sectors like energy and financial services, which could serve as a growth catalyst. However, restrictions on immigration could impact labor supply and slow GDP growth, potentially affecting industries reliant on immigrant labor.
The dollar has strengthened following the news as investors price in tariffs and deficit expansion. U.S. Treasury yields also climbed, with BofA projecting a trading range for the 10-year yield between 4.25% and 4.75%