According to the latest news from CCTV, on the early morning of November 6th local time, Republican presidential candidate and former president Trump delivered a speech at the Palm Beach Convention Center in Florida, announcing his victory in the 2024 presidential election.

After the election results were announced, overseas assets reacted swiftly, with both the US stocks and bond yields trending upwards.

Tax reduction policies support the profitability of US stocks.

For US stocks, many institutions believe that Trump's advocated policies such as internal tax reduction, emphasis on technology, and encouragement of fossil energy are to some extent favorable for US stocks.

HaoMai Fund believes that Trump's tax reduction policy will support the long-term profitability of US stock companies, overall benefiting US stocks. In terms of structure, small-cap stocks and cyclical industries may perform better, such as traditional energy sectors like finance and fossil fuels, which are expected to outperform the large cap sector.

Huabao Fund further believes that due to widespread reduction in holdings and risk aversion by institutional investors before this election, subsequent buying behaviors may help US stocks usher in a year-end rally. The underperforming US mid-small cap sectors this year may have a better performance than large cap stocks under the expectation of tax cuts. With Trump's support for the reshoring of manufacturing, US cyclical stocks are expected to perform as well.

However, many institutions also warn investors to pay attention to the risks in the US stock market and suggest investors to diversify their asset allocations to enhance portfolio resilience.

Although US growth stocks are still the focus of investors, their performance is mainly driven by earnings growth, which has recently begun to slow down, and the current stock prices are more likely to continue the trend of trading. In addition, there are still some disagreements in technology regulation. Although the catalysts that may cause significant fluctuations in large technology stocks in the short term have not yet appeared, given the high valuation background, the market is likely to change. US investors may need to pay attention to sectors other than technology. Recommended by JPMorgan Asset Management.

HSBC Jintrust Fund QDII Diversified Asset Investment Manager He Siyao also warns of risks. The short-term sentiment of the US stock market is relatively exuberant. Tax cuts and regulatory relaxation both have positive effects on businesses. However, it is important to note that if short-term US bond yields rise too much, it may put pressure on US stock valuations, especially if the market experiences a second round of inflation, the possibility of a simultaneous decline in stocks and bonds cannot be ruled out.

In terms of investment, JPMorgan Asset Management suggests that given the large previous gains in the US stock market, investors may need to be more cautious. It is currently difficult to determine the future policy operations of Trump. Therefore, the market may be entering a more turbulent period. Considering that current US stock valuations are much higher than other major developed markets, increasing exposure to developed and emerging markets can help enhance portfolio resilience to potential fluctuations in the US stock market. Alternatively, consider diversifying investments through increasing allocations to global real estate, infrastructure, private equity, and private credit among other alternative assets.

Long-term US bond yields may rise to the central level.

For US bonds, many institutions believe that Trump's policies will push inflation higher than Harris, and the government is also expected to achieve a higher fiscal deficit budget. All of these will drive the central level of US bond yields higher, especially at the long end of US bonds.

Based on concerns about Trump's policies, since October, the yield on the ten-year US Treasury bonds has risen significantly from around 3.74% to around 4.26% before the election. It is worth noting that since October, the market has widely priced in Trump's trade policies, and the real impact of Trump's election has been largely absorbed. However, after the election results were announced, the market still reacted strongly, with the 30-year US Treasury bond yield briefly rising to around 4.67%.

He Siyao believes that US bond yields are under pressure due to concerns about inflation rebound and a significant expansion of the US fiscal deficit. There has been a significant increase in October, and with Trump's gradual advantage on election day, there may be further increases. If the Republicans sweep the election, further increases cannot be ruled out. The long-term trend of US bonds still relies on economic fundamentals, and the US government's deficit situation will have a significant impact on term spreads. The current market consensus is that the US bond curve may steepen.

The investment team at Zhong Ou Fund also stated that Trump's external tariffs, internal tax cuts, and strict immigration policies will push up the inflation rate. Moreover, the fiscal deficit faces the possibility of further expansion, and the cycle of monetary policy rate cuts will need adjustments. There is a possibility of an upward trend in the 10-year US bond yield, but from the perspective of long-term allocation, this also means that the allocation value of US bonds will increase.

Morningstar Investment summarized that the resilience of the economy, inflation expectations, and the pressure of US Treasury supply collectively pushed up the long-term interest rate center of US Treasury bonds, causing the US Treasury yield curve to "steepen". Firstly, recent data reveals that the US economy still shows resilience, coupled with the Fed starting a rate-cutting cycle, increasing the probability of the rise in the US economy.But after the bursting of the internet bubble and the Fed's rate cut in 2001, the ROI dropped by more than 10%.One, recent data shows that the US economy still demonstrates resilience, in addition to the Fed initiating a rate-cutting cycle, boosting the US economy. Two, internal tax cuts, external tariffs, and stricter immigration policies have increased the secondary inflation pressure that the US may face. Three, loose fiscal policies have triggered market concerns over the supply of US treasury rates.

There is a growing divergence in the Fed's interest rate cut expectations.

After the dust settles from the US election, several institutions mentioned in interviews with Chinese brokerage reporters that the impact of the election results on global assets is pulse-like. Subsequently, attention will still be required on the Fed's interest rate cut direction, as well as the future trajectory of the US economy and policy implementation.

On November 7 local time (this Thursday), the November FOMC meeting of the Fed will be held. The latest data observed by CME on the Fed shows that the market expects a 25 basis point rate cut in November to be almost fully priced in. There is a 66% probability of further rate cuts in December, down from 77% on Monday, indicating an increased divergence in the Fed rate cut expectations.

Huabao Fund believes that referring to Trump's policy direction from 2017 to 2020, the policy for the next 4 years may involve promoting "reduced government spending, increased tariffs, lowered tax rates, monetary easing, and supporting the reshoring of manufacturing," while aiming for a "smaller government." If Trump returns to the White House, potentially the first step would be establishing a government efficiency audit bureau to reduce government spending, followed by the implementation of tax cuts and tariff policies. This could temporarily slow down the US economic growth rate but aid in further deflating inflation. The Fed is likely to make further rate cuts early next year in a cycle of declining inflation, making the monetary environment even looser.

However, JPMorgan Asset Management believes that trade frictions could trigger higher inflation, which may lead the Fed to be more cautious in its easing policies. They predict the Fed will continue with a 25 basis point rate cut in November, which is already reflected in market pricing. However, by next year, if there is inflation due to increased fiscal spending or tariff adjustments, the Fed may proceed with rate cuts more cautiously.

Another fund company in Shanghai also believes that Trump's victory in the US presidential election, his tax reduction policies are beneficial to the US economy, tariffs and immigration restrictions will create re-inflationary pressures, making the Fed's rate cuts slower. Especially the tax reduction policy, which is favorable for US economic growth, but also increases the long-term financial burden on the US, coupled with other re-inflation policies, there is a risk of delaying the Fed's rate cut pace in the long term, possibly keeping US interest rates high for a longer period.

He Siyao said, the combination of "growth + inflation" may affect the Fed's interest rate cut cycle, but on the other hand, comprehensive tariffs will drag down the US economy and may also bring stagflation risks. Of course, after Trump officially takes office in January next year, there is a great deal of uncertainty whether these policy proposals can be implemented one by one, and whether there will be adjustments in specific content and implementation levels. The sequence of policy promotion also needs to be closely monitored in the future.

Editor/rice