A Trump win opens the door for tax cuts, deregulation and tougher trade policy, says Blackrock Investment Institute (BII) following the US Presidential election which concluded on Nov 6.
Analysts at BII say that control of the House of Representatives would give the second Trump administration broader powers to enact its tax, energy, trade and regulatory agenda. Republican control of Congress is key for the former US President to extend expiring tax cuts and job acts provisions, they note.
Trump is likely to propose new cuts, potentially including corporate taxes, according to BII. Congressional budget procedures allow deficit increases over the next decade, likely meaning persistent budget deficits – one factor that BII thinks will push up long-term treasury yields.
On trade, Trump will likely make his 60% tariffs on China and 10% - 20% universal tariffs an early priority, yet implementation is uncertain, they say.
“This protectionist stance could reinforce geopolitical and economic fragmentation, a structural factor we see keeping inflation higher in the medium term. A reduction in legal immigration could impact the labour market,” BII analysts note.
Under Trump, deregulation, including rolling back banking regulations may occur, although big tech may remain bipartisan antitrust focus, they add.
See also: What Trump 2.0 means for investors
The analysts say that Republicans could aim to boost energy production, although oil and gas output has already hit all-time highs and ramping up production takes time. “We expect Trump will pursue permitting reform to expand energy infrastructure,” they note.
In the near term, BII sees US equities supported by “solid” economic and corporate earnings growth, political clarity and Fed rate cuts. In the long term, this will depend on how much of Trump’s agenda is enacted.
“We think that the energy, financial and tech sectors can benefit, partly from deregulation. We see multiple factors, including supply constraints like an ageing workforce, keeping inflation above pre-pandemic levels. Higher-for-longer inflation and policy rates could eventually challenge risk sentiment,” they say.
BII is neutral long-term US treasuries and prefer medium-term maturities and some quality credit for income, but they expect yields to rise over time as investors seek more compensation for the risk of holding bonds.
“We stay risk-on in US equities, supported by solid growth and earnings. Yet sticky inflation and higher-for-longer interest rates could eventually challenge risk sentiment,” the analysts note.
