If former President Donald Trump wins the 2024 election, the stock market bubble inflated by the strong rebound of AI stocks may burst ahead of schedule. On the product structure, the operating income of products worth 10-30 billion yuan are respectively 401/1,288/60 million yuan.

John Higgins, chief market economist of Capital Economics, pointed out in a report last week that Trump's proposed tariffs and immigration policies would be disastrous for the economy.

Higgins said that Trump's re-election "could generally involve imposing tariffs and reducing immigration, resulting in a slowdown in economic growth and rising inflation."

This would be a nightmare for the Fed, because higher potential tariffs would limit its ability to cut interest rates, even if economic growth slows.

In this scenario, although Trump's trade and immigration policies pose a threat to economic growth, the Fed may not be inclined to relax policies (if any). This is because these policies will jeopardize its fight against inflation.

Higgins said: "This, in turn, will weaken stock valuations, because an expected increase in interest rates would push up bond yields under other conditions."

Capital Economics believes that before the bubble bursts, US stocks will continue to hit new highs until the end of 2025, reaching as high as 7,000 points, similar to the situation of the dot-com bubble in 2000.

Higgins said: "It is worth reviewing that the dot-com bubble burst after the Fed tightened policy and bond yields rose."

More importantly, if Trump wins the election and Republicans win control of Congress, the possibility of a surge in fiscal spending will also set limits on the Fed's room for rate cuts.

The state of US public finance is even more dire than in 2016. Therefore, conservative members of Congress will probably oppose expanding the budget deficit because they are concerned about provoking rebellion from bond vigilantes.

Higgins added: "Even without that, a significant surge in fiscal spending would give the Fed more reason to reconsider its appropriate stance on monetary policy, as it would pose a threat to price stability."

Higgins believes that if Trump fails to win the 2024 election, the stock market bubble will still face a series of potential risks, including slowing corporate profits, lagging Fed policies ultimately affecting economic growth, or facing "unexpected events, possibly geopolitical turmoil."

Although Trump's victory in the 2024 election may prematurely burst the stock market bubble, Higgins still insists on his view that the S&P 500 index will soar to 7,000 points in 2025 and then eventually fall back.

Edited by Jeffrey