Trump's second presidency could make room for the US stock market to rally over the remainder of the calendar year, on anticipation of pro-growth policies such as an extension of tax cuts and deregulation, according to Jefferies' latest 'Greed and Fear' note.
The brokerage said Trump's policies, whether tariffs, reshoring of production, or a clampdown on illegal immigration are fundamentally inflationary, though Elon Musk's intent to cut the federal budget would lead to the opposite effect.
Rising bond yields in the US continue to pose a risk for global equities. This could make US investments more attractive to global investors, and potentially lead to capital outflows from emerging markets like India, it said.
Even as the election outcome has led to a renewed cyclical optimism, an "alarming fiscal deterioration in the US is the unacknowledged reason why the Fed will try to keep cutting rates", Jefferies said.
China Stimulus Implications
With a lackluster stimulus announced by the Chinese government, Jefferies states that "it is perhaps surprising that the Chinese stock market has not corrected more, most particularly given the threat of 60% tariff hikes from the just-elected Trump".
On the other hand, the Chinese government's focus on stabilising asset prices, whether in the residential property market or the stock market, could create a hope for Chinese households to increase spending and lead to a revival in demand.
Jefferies expects more property easing measures, as well as a scheme to finance local authorities to buy uncompleted projects and vacant land from developers.
While the developments may not imply another "boom" in Chinese residential properties or a peak for the sector's contribution to the country's GDP growth, it could imply a reduced risk of a downward deflationary spiral.
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