In campaign offices across the country, the presidential election is neck-and-neck, but on Wall Street it’s a done deal.
“The investment community has very much favored Trump based on my conversations and just on a general vibe,” Jose Torres, senior economist at Interactive Brokers, told me. Fortune.
The market has already started pricing in a Trump victory. A series of recent analyst notes detail how Trump’s protectionist economic policies would translate into market outcomes. Investors expect that a second Trump term would lead to tariffs on importers wanting to enter the US market and higher levels of inflation. Trump’s signature economic proposal to impose blanket tariffs is not the platonic ideal of free-market policies one might associate with conservative leaders of the past. Yet the market is fully preparing for the tectonic shifts that a closed American market could cause for the global economy.
In Europe, equities are already lagging the broader market. In the US, inflation forecasts are starting to rise just as Trump was gaining an advantage in the betting markets. Analysts are even starting to worry about stagflation predictions. The polls show Trump and Vice President Kamala Harris in a dead heat heading into the final week of their respective campaigns. However, the prediction markets are tilting in Trump’s favor, which has colored much of the market’s predictions.
“Trump’s victory is increasingly priced in, but polls are still tight,” Barclays European equity strategist Emmanuel Cau wrote in an analyst note published Wednesday.
According to Barclays, European stocks are already underperforming the market as investors fear they will be hit hard by Trump’s proposed tariffs. For investors, European companies struggling with Trump’s tariffs could lead to big profit hits. In the worst-case scenario of a full-blown trade war between Europe and the US, companies in Italy and Germany could see a large single-digit drag on earnings growth, according to Barclays. According to the bank’s prediction, entire sectors, such as the technology sector and the European car market, could suffer the same fate.
European stocks “are lagging behind, suggesting they could be seen as the losers of a second Trump presidency,” Cau wrote.
Another feature of Trump’s tariffs is that they are widely expected to be inflationary. “Expected rates (under Trump’s proposed proposals) support the potential upside risk to market prices from inflation if Trump wins the US election,” Bank of America interest rate strategist Meghan Swiber wrote in a note on Wednesday.
