Market Mayhem: Can Trump’s Presidency Weather the Perfect Storm of Debt Uncertainty and Send US Stocks Soaring
Investment Insights – Former U.S. President Trump is about to return to the White House and continues to raise the trend of U.S. bond yields. Whether the 10-year Treasury bond yield exceeds 4.5% has become a hot topic.Wall Street analysts worry that a surge in yields exacerbated by a sell-off in U.S. Treasuries will limit gains in U.S. stocks until the end of 2024.
On Wednesday, November 6, after Trump announced that he had won the 2024 U.S. presidential election, U.S. stocks surged, with the S&P 500, Dow Jones and Nasdaq all hitting record highs.
Because Trump will implement extensive tax cuts and other measures, the market generally expects that the U.S. stock market will perform better under the leadership of the Trump 2.0 administration than that of the Democratic Party.
However, it should also be noted that Trump’s policy tendencies will also push up “reflation risks.” The U.S. dollar index soared to a four-month high on Wednesday, with an increase of 1.686%, the largest single-day increase since March 2020;The 10-year Treasury yield rose 14 basis points to 4.434%, on track to achieve its largest gain this year.
As stocks move higher, some investors worry that the intensifying sell-off in the bond market could soon spread to stocks, putting a damper on the broader market rally before the end of the year.The lower bond prices are, the higher yields will be, which puts pressure on the S&P 500, which is currently so highly valued.
JJ Kinahan, CEO of IG North America, said, “While the rise in the stock market has attracted widespread attention and rising prices will have a more direct impact on many people, the interest rate situation will be what I need to watch in the coming weeks and months. “
Kinahan warned,Rising yields could make it more expensive for companies to finance their operations and buy back shares, factors that help keep markets elevated.
Many analysts emphasized that the future trend of U.S. stocks still needs to focus on the economic prospects. Nomura also noted that a post-election “volatility squeeze” may also draw experienced traders back into the market.
Since the lows hit on September 16, the day before the Fed cut interest rates in September, the benchmark yield has climbed more than 80 basis points. So far, the surge in yields doesn’t appear to be putting much pressure on stocks.
However, that could change soon, said Logan Moulton, senior portfolio manager at Intelligent Wealth Solutions.
Moulton mentioned,Whether yields start to put more downward pressure on stocks may depend on how Trump decides to pursue his policy agenda and whether Republicans manage to maintain control of the House of Representatives.
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