The ‘red sweep’ in the US elections has helped to clear market uncertainty, fuelling optimism in sectors like financial services, defence, and small-caps, especially regional banks, according to Saxo Chief Investment Strategist Charu Chanana.
Investors anticipate Trump’s tax cuts and deregulatory stance, which underscores US market resilience and exceptionalism, says Chanana.
“Sectors benefiting from his agenda, particularly those tied to domestic growth and smaller-cap companies, are already seeing gains. The financial services sector stands out, with regional banks spiking 10% on hopes of regulatory relaxation, lower capital requirements, and a friendlier M&A landscape … the other side of this growth-focused agenda is rising fiscal pressure,” she says.
“Extending current tax cuts could push deficits up by an estimated US$5 trillion by 2034, driving national debt further above 100% of GDP. Additionally, any tariff escalations or tightened immigration policies could add inflationary pressures, particularly concerning after recent inflationary years.”
Analysts at Morningstar agree, noting the return of Trump to the US presidency brings the prospect of more tax cuts and deregulation, but also more tariff hikes, trade wars, and policy uncertainty.
Trump’s key policies include making the 2017 personal tax cuts – which took the top marginal tax rate to 37% – permanent (as they expire next year) and cut the corporate tax rate to 20% with 15% for domestic profits.
The President-elect is threatening to ramp up protectionism with a 10-20% tariff on all goods imports and a 50-60% tariff on goods from China.
This would take the average US tariff rate on imports from about 2.5% to at least 17%, a level not seen since the 1930s, according to Morningstar.
Goldman Sachs’ forecast for the S&P 500 Index of stocks is broadly the same as it was before Trump won the election, however beneath the surface the outlook has changed substantially for some sectors.
Goldman Sachs Research chief US equity strategist David Kostin says the S&P 500 is still projected to climb some 9% to 6,300 in the next 12 months.
Kostin says the firm’s researchers forecast growth in earnings-per-share of 11% in 2025 and 7% the following year, though he points out that those estimates may change as more is revealed about the new administration’s policy agenda. “Robust earnings growth should drive continued equity market appreciation into next year,” Kostin adds.
Write to Adam Orlando at Mining.com.au
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