What Happened: While tax cuts and deregulation are positive for the stock markets, the Trump administration’s take on immigration and higher tariffs have an opposing effect on the markets.
As per Kansal, with the deportation of immigrants, “the cost of labor will go up for all companies, which basically means the profitability of companies will go down.” Additionally, he said that with tariffs, the “stock prices could be lower” because of a shift in “global demand”.
Morgan Stanley, in its note dated Dec. 3, also cautions that concerns over trade tariffs, immigration policies, fiscal sustainability, and how the scope and timing of new policies may constrain the broader economic outlook. The global financial services firm anticipates growth and innovation, particularly in the technology and natural gas sectors.
Why It Matters: According to Kansal, highly regulated industries like “energy, oil and gas, health care, and banking will be seeing tailwinds” because of the deregulation attempts.
On the other hand, ProShares S&P 500 Ex-Energy ETF (NYSE:SPXE) grew by 28.85% year-to-date, outperforming the index.
Even though the energy sector has underperformed the broader markets in 2024, "fundamentally, companies are shareholder friendly with 8-12% shareholder yields, have strong balance sheets with low net debt to EBITDA ratios and high free cash flow yields of 6.50% and above," he adds.
Kansal, on the other hand, was also positive about the technology sector given the rise in the A-I frenzy. “The biggest factor that is driving the U.S. stock market right now is AI. There’s a lot of activity, lots of investment that has gone in because of the expectation of AI increasing productivity,” he said.
However, Georgiou said, “Rising bond yields increase the discount rate applied to future earnings, disproportionately affecting high-growth sectors like technology. We therefore prefer higher quality tech companies, avoiding
highly leveraged, unprofitable tech stocks. This does not make us underweight Technology, as there
are sufficient high-quality companies in this sector to make up the allocation with.”
Major AI payers in the U.S. stock markets include Nvidia Corporation (NASDAQ:NVDA) with a 195.7% year-to-date gain and Microsoft Corp. (NASDAQ:MSFT) with stock gains of 19.6% in the same period.
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