Trump Wins And Stocks Boom?

According to BCA Research’s Geopolitical Strategy service, Trump’s agenda is structurally inflationary and would eventually be needed to be discounted by markets, if he wins.

Most retail investors – and many clients – seem to believe that Trump will win and the stock market will boom. Opinion polls show Trump leading in swing states. The market rallied when he won in 2016 on the expectation of tax cuts, which eventually boosted corporate earnings. Trump is proposing tax cuts again.

Three things to remember:

A relief rally is the norm after elections because uncertainty is removed.

If recessionary dynamics give Republicans full control, then the market will cheer tax cuts and other stimulus designed to aid the recovery.

If the economy expands and Biden loses anyway, then the bond market may revolt against Republican fiscal stimulus. This is the “Liz Truss” scenario, which is now becoming widely discussed.

The important point is that Trump’s agenda is structurally inflationary. Hence Trump and the Federal Reserve will eventually clash – and the president has the power to remove the Fed chair, however controversial it may be.

Whatever happens initially, the market will eventually need to discount another uptick in inflation.