• The odds of a Donald Trump return to the Oval Office are rising after the first presidential debate.

• Another trade war could be a headwind for stocks under a Trump 2.0 presidency, but it wouldn't be enough to stop an AI bubble, according to Capital Economics.

• "We do think inflationary concerns would again push up Treasury yields, just from a different source — tariffs," the firm said.

---

Following President Joe Biden's struggles at the first presidential debate, the odds of a second Donald Trump presidency are rising. Investors are taking notice.

Even before the debate, Trump was ahead of Biden in various polls and betting markets.

According to a recent note from Capital Economics, a Trump 2.0 presidency would likely have a big impact on the top macro factors that investors are most concerned about: inflation, interest rates, and the US dollar.

All three of those would likely turn higher if Trump was elected as the 47th US President, and that would ultimately represent a headwind for stock prices.

"We don't think there is much scope for Trump to repeat the fiscal expansion and tax breaks which boosted equities during his first term in office; instead, we think the policy most likely to move markets this time would be escalating the 'trade war' with China and potentially imposing universal tariffs on US imports," Capital Economics' market economist James Reilly said.

For his part, Trump said last month that he would consider implementing a sky-high 60% tariff on Chinese goods if he were re-elected. That would be significantly more than the tariffs Trump implemented in 2018, and not only would it disrupt global trade, but it would likely undo a lot of the progress the Federal Reserve has made in combatting inflation.

"His tariff proposals would probably trigger a rebound in inflation which could persuade the FOMC to raise interest rates," Reilly said. "So, while the source of the inflation impulse would be different (tariffs rather than concerns over expansionary fiscal policy), we think that win for Trump would once again push up Treasury yields."

Additionally, Reilly said Trump's potential tariffs would subtract up to 1.5% from US GDP and hurt corporate profits.

And this, combined with the fact that there would likely be little appetite in Congress for Trump to enact fiscal expansion programs like he did during his first Presidential term, the US dollar would move higher, which would represent another headwind for stock prices, since it would make exports more expensive.