Financial strategists on Wall Street largely agree that U.S. Treasury yields will be a key driver of the stock market's performance following the U.S. election. A victory for Trump and a Republican sweep in Congress could lead to limited fluctuations in the 10-year Treasury yield, which would be beneficial for the stock market. Conversely, a win for Harris and a split Congress could provide short-term gains for consumer stocks affected by tariffs and renewable energy stocks.
Strategists from both JPMorgan and Morgan Stanley concur that Treasury yields will influence the post-election stock market trends. The Morgan Stanley team, led by Michael Wilson, suggests that an improvement in economic growth expectations under a Trump-led government would result in limited yield movement, signaling positivity for stocks. In this scenario, cyclical stocks like financials and industrials are expected to perform well.
However, they caution that a significant rise in Treasury yields due to fiscal concerns could heighten risk aversion in the stock market, adversely affecting tariff-sensitive consumer stocks.
Recent polling data ahead of the U.S. election has prompted some investors to reduce positions linked to the "Trump trade." The polls depict a close race between Democratic candidate Harris and Trump, with Harris holding a slight edge nationally and in some swing states, influencing a decline in Treasury yields. The 10-year Treasury yield currently stands at 4.294%.
Morgan Stanley notes that if Harris assumes the presidency and Congress remains divided, tariff-affected consumer stocks and renewable energy stocks may outperform in the short term. Additionally, lower interest rates could benefit housing-sensitive consumer stocks, while financials, industrials, and commodity-sensitive sectors might underperform.
The team from JPMorgan, led by Mislav Matejka, advises equity investors to keep a close watch on the bond market. They highlight that investment levels in U.S. equities are higher this year than in 2016, with a general expectation of a positive market reaction to a Trump victory. However, they emphasize that the sustainability of any stock market rally might depend on the response of Treasury yields.
Analysts also suggest that a Harris victory could increase uncertainty around corporate tax paths in the short term, but reduced tariff risks might offer stock market support in the mid-term.
