While the presidential election is a closely contested race on the campaign trail across the country, it is a settled issue on Wall Street.
“The investor community is very, very supportive of Mr. Trump, based on my conversations and the overall tone,” Jose Torres, senior economist at Interactive Brokers, told Fortune. Ta.
Markets are already starting to price in Trump’s victory. A series of recent analyst notes detail how President Trump’s protectionist economic policies will affect market outcomes. Investors expect a second term for Mr. Trump to mean higher levels of inflation and tariffs on importers wanting to enter the U.S. market. Trump’s signature economic proposal of blanket tariffs is not the platonic ideal of free market policy associated with past conservative leaders. But markets are very much prepared for the seismic shifts that a closed US market could bring to the global economy.
In Europe, stock prices are already lagging behind the broader market. In the United States, inflation expectations are trending upward just as Mr. Trump has gained an upper hand in the gambling market. Analysts are even starting to make noise about predicting stagflation. Polls show that Trump and Vice President Kamala Harris are in a heated battle heading into the final weeks of their respective campaigns. But prediction markets are tilted in Trump’s favor, and that’s driving much of the market predictions.
“Trump victory is increasingly priced in, but polls remain tough,” Emmanuel Cau, European equity strategist at Barclays, said in an analyst note published Wednesday.
Barclays says European stocks are already underperforming the market as investors worry they will be hit hard by President Trump’s tariff proposals. For investors, European companies struggling with President Trump’s tariffs could take a big hit to their earnings. In a worst-case scenario, in which a full-scale trade war breaks out between Europe and the United States, Italian and German companies could see a drag on their low-single-digit EPS growth, according to Barclays. The bank predicts that entire sectors such as high-tech industries and the European car market could suffer the same fate.
European stocks “continue to lag, suggesting they may be seen as losers for President Trump’s second term,” Kaw wrote.
Another feature of President Trump’s tariffs is that they are widely expected to be inflationary. Bank of America interest rate strategist Megan Swiver said in a note Wednesday that “the expected tariffs (based on Mr. Trump’s stated proposals) will be the market price of inflation if Mr. Trump wins the U.S. election. “This confirms the potential upside risks to the settings.”
And as Wall Street expects Trump to win the election, expectations for future inflation are rising. For example, inflation compensation, the premium investors are willing to pay to protect the real value of their returns from inflation, has increased since September, according to Bank of America. Part of the increase was due to positive economic indicators. Another part had to do with Trump’s political fortunes.
“We also note that it is consistent with the market-implied high probability that former President Trump will win the US election,” Swaiber wrote.
Bank of America estimates that President Trump’s tariffs would cause inflation of 70 to 80 basis points.
