In campaign offices across the country, the Presidential Election is tight, but on Wall Street it is a settled matter.
“The investor community is very, very, supportive of Trump based on my conversations and just based on the general mood,” said Interactive Brokers senior economist Jose Torres. Property.
The market has started to predict Trump’s victory. A series of recent analyst notes detail how Trump’s protectionist economic policies will impact market outcomes. Investors expect a second Trump term will mean tariffs on importers hoping to enter the US market and higher inflation rates. Trump’s signature economic proposal of sweeping tariffs is not the platonic ideal of free market policy one may be associated with conservative leaders of the past. However, the market is preparing itself for the major changes that the US market closure may have on the global economy.
In Europe, shares have lagged behind the broader market. In the US, inflation estimates started showing an upward trend as Trump started to outperform in the betting markets. Analysts are even starting to get confused about stagflation predictions. Polls show Trump and Vice President Kamala Harris in a difficult situation heading into the final weeks of their respective campaigns. However, market predictions are trending in favor of Trump, which has colored most of the market forecasts.
“Trump’s win is increasingly priced in, but polls remain tight,” wrote Barclays Europe equity strategist Emmanuel Cau in an analyst note published on Wednesday.
European shares are already underperforming the market due to investors’ fears of being hit by Trump’s tariff proposals, according to Barclays. For investors, European companies struggling with Trump’s tariffs could cause a big drop in earnings. In a worst-case scenario of a full-blown trade war between Europe and the United States, companies in Italy and Germany would experience single-digit drag on EPS growth, according to Barclays. Entire sectors, such as technology and the European auto market, could suffer the same fate, the bank estimates.
European stocks, “continue to lag, indicating that they may be considered the losers of Trump’s second term,” Cau wrote.
Another feature of Trump’s tariffs is that they are expected to be inflationary. “Expected rates (as per Trump’s proposal) support potential upside risks to market inflation expectations if Trump wins the US election,” Bank of America rates strategist Meghan Swiber wrote in a note on Wednesday.
And as Wall Street predicts Trump will win the election, projections of future inflation rates are rising. For example, inflation offsets, the premium investors are willing to pay to protect the real value of their returns from inflation, have increased since September, according to Bank of America. This increase was partly due to positive economic data. Another part concerns Trump’s political fate.
“We note this also coincides with a higher probability implied in the markets that Former President Trump wins the US election,” Swiber wrote.
Trump’s tariffs would lead to inflation of 70 to 80 basis points, according to Bank of America estimates.