After Donald Trump was re-elected as US President, stock investors welcomed his return with enthusiasm. However, despite the stock price rally, the stock market still has potential risks.
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| There are three risks to the stock market. (Source: HSC) |
US stock indexes have hit new highs, as investors expect policies pledged by Mr Trump to boost corporate profit growth.
While the current market sentiment remains bullish, Morgan Stanley has identified three factors that could turn negative and reverse this rally.
First, US government bond yields have risen sharply. Mr. Trump’s election has created a surge in bond yields, as Wall Street predicts that his policies will spur inflation, which will keep interest rates high.
The yield on the 10-year Treasury note rose 21 basis points to 4.47% on November 6. While the increase is not enough to worry equity investors, Morgan Stanley warned that if yields continue to rise, the stock market will be negatively affected.
In addition, concerns about the US government's growing budget deficit also pushed bond yields higher.
The stock market rally will struggle as bond yields approach 5%, analysts from JPMorgan note.
Second, the strength of the US dollar could be a drag on large-cap stocks. After Mr Trump was elected, the Bloomberg Dollar Spot Index surged the most in four years, hitting its highest level since November 2023.
Speculation that interest rates will stay high for longer under Trump is also supporting the greenback.
Meanwhile, other currencies fell against the USD on concerns that the US President-elect will increase tariffs on imports into the US.
“If the US dollar continues to strengthen at its current pace through the end of the year, this will slow multinational companies’ profit growth in the fourth quarter of 2024 and in 2025,” Morgan Stanley forecasts.
Third, the stock price is overvalued.
The S&P 500 index is being "inflated" by investors' expectations of new trends, such as artificial intelligence (AI), rather than on the fundamental financial factors of the companies in the index, according to Morgan Stanley.
Morgan Stanley said: "The current rally of the S&P 500 index is not fully consistent with the earnings revisions of the companies in the index. For this growth momentum to continue, there needs to be data confirming that the economy or businesses are truly recovering and growing again."
Source: https://baoquocte.vn/nha-dau-tu-chung-khoan-ho-hoi-khi-ong-trump-tro-lai-nha-trang-van-co-ly-do-dao-nguoc-da-tang-293608.html
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