Trump victory, divided Congress would be mild positive for US equities: UBS
2024.11.06 07:57
Investing.com — UBS analysts see a potential Trump victory paired with a divided Congress as a “mild positive” for U.S. equities, forecasting the to reach 6,400 by the end of 2025.
A UBS equity strategist said he expects that such an outcome would maintain a moderately favorable environment for stocks, supported by a lighter regulatory load across sectors like real estate, energy, and financials.
A divided Congress could prevent sweeping policy changes, leading to a steady market environment. UBS’s credit team suggests that much of the market has already priced in this scenario, with high-yield spreads near 270 basis points and investment-grade spreads around 80 basis points.
They also project the could rise to about 4.4% in this scenario.
However, UBS warns that a clean Republican sweep—though considered unlikely—could also create some volatility. Under this outcome, Golub estimates a slightly lower S&P 500 target of 6,375, while credit spreads could tighten as yields edge higher.
Additionally, UBS’s FX team notes that a full Republican sweep might bolster the U.S. dollar more than a divided Congress would due to expected tax cuts and regulatory shifts.
A Red Sweep would likely bring the corporate tax rate reduction from 21% to 15%, generating an estimated $598 billion benefit over ten years. UBS analysts suggest this could initially boost equities but caution against medium-term impacts, as 2026 is expected to bring a worse growth/inflation mix, driven in part by a possible 60% tariff on a significant portion of Chinese imports, which could trim U.S. GDP by up to 0.6%.
Even under a divided Congress, UBS forecasts an additional $3.1 trillion in government debt over the next decade, posing long-term challenges for fiscal policy and potential upward pressure on bond yields.
