Rosenberg Research: A Donald Trump defeat could hurt the U.S. stock market

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Tax,Impact,Risk

Beware the hit to profits and the market multiple if the Democrats sweep

Investor “animal spirits” are riding high following the recent jumbo rate cut from the Fed, but the cost of being too focused on the “here and now” means overlooking the risks ahead. Indeed, markets seem to be operating on a rather short memory, with the kick-off to the monetary policy easing cycle quickly supplanting Kamala Harris’ post-debate rise in the polls the week prior as the prime market-moving event.

Should the election result in a Harris victory and Democratic control in both the House and Senate, and assuming a quick implementation in the proposed tax hike impacting full-year 2025 results, our work shows that a 28% rate would translate to a -7% hit to S&P 500 earnings per share . We can also factor in the hit to investor sentiment, with news of an increase to tax rates historically resulting in a -1.1 point compression in the P/E multiple.

 

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