Welcome to Thoughts on the Market. I’m Michael Zezas, Morgan Stanley’s Global Head of Fixed Income and Thematic Research. Today on the podcast we’ll be talking about key themes coming out of the US election.
It’s Thursday, Nov 14 at 10am in New York.
The US election is over, and now the work begins for President Trump and Republican leaders in Congress. They’ll continue to focus in the coming weeks on staffing key roles in the government and fleshing out the policy agenda. When it comes to the economic and markets outlook for 2025, those details will matter a lot – particularly the sequencing and severity of changes to tariffs, immigration, and tax policy. That means for us the next few weeks will be key to learning what next year will look like. But there are still some areas where there’s already some signal for investors to lean on.
One is in the financial sector and relates to regulation. A potentially delayed or diluted approach to bank regulation resulting from the policies of the new administration is one reason that our Banks Analyst Betsy Graseck is flagging a more bullish outcome and substantial outperformance potential for the sector. Similarly, our global head of credit research, Andrew Sheets, notes this election outcome should boost M&A activity, where an expected 50 percent pick-up in volumes next year could reach 75 percent or more.
Another area is industrials, a sector where companies tend to spend a lot on capital. The Republican sweep substantially increases the chances that key tax benefits reducing the cost of capital expenditures are extended in a timely fashion.
And in the U.S. treasury market, there’s signs that the most volatile part of the increase in yields is behind us. While it's true that extending expiring tax cuts means deficits will be higher next year than they otherwise would have been, it's basically just an extension of current policy – so any incremental impact to growth and inflation expectations being priced into this market is still an open question. This should be helpful to fixed income markets finding their footing into year end.
But, as we started off with, there’s a lot to be learned in the coming weeks, and we’ll flag here what you need to know and how it may impact the direction of markets.
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