With Trump reclaiming the White House, a series of 'Trump trades' in the global financial markets undoubtedly also entered into a night of revelry.

At the same time, it also propelled the three major US stock indices to further refresh their historical highs, with the S&P 500 index achieving its best performance on an election day in history.

Wall Street analysts stated that the market is digesting the bullish factors of Trump returning to the White House. Looking ahead, how will the US stock market perform?

From historical data, the US stock market has seen positive returns in every presidential term except during the tenure of George W. Bush. When broken down by year, the performance in the first year of each presidency is usually good, with most years recording double-digit increases.

With the dust settling on the US presidential election, Goldman Sachs expects that the US stock market will continue to rise, with the uptrend likely to continue at least until the end of the year. The bank's analysts provided three reasons:

Firstly, looking at historical trends, US stocks typically show strong growth at the end of election years.

Secondly, as investors reallocate funds to the stock market, stocks are expected to rise.

Finally, Goldman Sachs speculates that the mergers and IPO activities driven by the Trump administration will further support stock prices.

Morgan Stanley's chief US stock strategist Mike Wilson expects that as the US presidential election ends and concerns about missing out on the market's FOMO psychology at the end of 2024 begin to take effect, the S&P 500 index may continue to rise in the final stages of 2024. However, he also warns that due to the lack of clear catalysts, this enthusiasm for the stock market rally may fade as 2025 approaches.

Solita Marcelli, Chief Investment Officer for UBS Global Wealth Management Americas, stated that US single stock rose when the election results were announced. In our base case scenario, we expect the S&P 500 index to rise to 6600 points by the end of 2025. This is due to the moderate growth of the US economy, lower interest rates, and the continued structural support of artificial intelligence.

Some market analysts believe that Trump's long-term tax cut policies are bullish for US stock corporate profits, overall bullish for 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, expected to outperform the large cap index.

But as U.S. stocks rise, many analysts also caution that Trump's return brings not only bullish news.

Citi's Drew Pettit stated that while US stocks are rising, there are also bearish factors at play: "When we think about what's happening in markets outside the stock market today - rates will rise. In the long term, if rates continue to rise, we believe this will limit the fair value of the stock market, including small cap stocks."

Nomura economists predict that after Trump's return, the Fed is expected to cut interest rates only once in 2025, and then keep the policy rate unchanged until the actual inflation impact from tariffs subsides.

What should we focus on next?

At 3:00 am Beijing time on Friday, the Fed will announce its latest interest rate decision. This will be followed by a press conference by Powell at 3:30am.

The market generally expects the Federal Reserve to continue its loose cycle in November, with all analysts predicting a 25 basis point rate cut, which is highly consistent with the pricing in the money market.

However, looking ahead at the future rate cut path, due to Trump's policies widely seen as inflationary, market pricing for the November and December meetings is below 50 basis points.

Many analysts believe that Trump's proposed policies, including raising import tariffs and additional tax cuts, may reignite inflationary pressures, with these policies being more inflationary than Harris's policies. Therefore, a Trump reelection may significantly hinder the Fed's accommodative path.

After Trump was elected President of the United States, some Wall Street major banks lowered their bets on future rate cuts by the Federal Reserve.

JPMorgan economist Michael Feroli adjusted his forecast for the Fed's rate path, writing in Wednesday's report that the Fed may cut rates by 25 basis points at both this month and the December meetings, then starting quarterly cuts from March next year, i.e. reducing rates only once per quarter until the federal funds rate reaches 3.5%. JPMorgan believes that Trump's reshaping of the Fed's capabilities may only slowly realize over time.

Nomura's David Seif and other economists continue to predict that the Fed will cut rates twice by 25 basis points this year. However, their expectations for Fed rate cuts next year are quite pessimistic, with the latest forecast suggesting only one cut next year, far below their previous expectation of four cuts next year. Nomura has raised its terminal rate forecast for Fed rate cuts by 50 basis points to 3.625%.

Analysts believe that the Fed's statement is expected to emphasize that economic risks are "roughly balanced," and will maintain flexibility on future interest rate paths. The market will closely watch Chairman Powell's speech, especially his views on the potential impact of Trump's policies. Powell may reiterate the Fed's stance of flexibly adjusting policies based on data.

Apart from the Federal Reserve, China Merchants Securities also mentioned that the next 1-2 months are crucial periods to observe the impact of Trump's new policies.

Following the normal procedure, after the election results are confirmed (time unknown), Trump will deliver a victory speech. From November to December, there will also be a new president transition period. During this time, Trump can use this time to form a cabinet, streamline personnel and institutions. Subsequently, we will continue to track the nomination of officials.

Next year, on January 3rd and January 20th, the congressional and presidential inaugurations will respectively take place. Trump's inauguration speech and a series of executive orders that may be issued from late January to early February are important windows for us to observe Trump's governance direction.

How will the US election results affect the interest rate reduction path? Will the Federal Reserve lower interest rates at this meeting as expected by the market? Feel free to schedule to watch Powell's monetary policy press conference to get real-time updates on Powell's latest views.

Editor/Somer