What Wall Street Thinks About A Possible Red Sweep
Vicki M. Young
6 min read
With the red wave likely making a clean sweep on Election Day Tuesday in the U.S., the big question is “What’s next?”
Wall Street is happy now that there’s certainty in the air. The Dow jumped 1,300 points, or 3 percent, in early trading Wednesday on the news that Donald J. Trump, the 45th president of the United States, has been elected as the country’s 47th president. That spike represented the first time since November 2022 that the Dow rose more than 1,000 points, with other indices—the S&P 500 and the Nasdaq—also showing increases.
The Republican Party also succeeded in gaining majority control of the U.S. Senate. As for the House of Representatives, votes are still being tallied for nearly 60 races that will determine which party gets control. The expectation is that the GOP will eke out a narrow victory for control of the House.
Below is a summary of what Wall Street thinks is coming ahead in 2025 and beyond.
Goldman Sachs
Presuming a Republican sweep, the expectation is continued growth, meaning that the dollar depreciation is likely to erode slowly. Higher tariffs would be on the agenda. While that would increase the costs of foreign goods for American consumers, the use of tariff revenues to lower domestic taxes should act as a fiscal stimulus that would also support the dollar. The prospect of higher tariffs could lead to outperformance of stocks with high domestic revenue and supply chain exposure. And the potential for lower corporate tax rates and other pro-growth policies should be beneficial to U.S. corporations.
Goldman strategists expect that a divided Congress is expected to result in China-focused tariffs rather than a more expansive tariff package, which could require congressional support. And without congressional support, expect to see limited prospects for tax cuts or other major legislative changes. As for trade, that will likely be similar to a Republican sweep as the president has authority independent of Congress on many aspects of trade policy.
Goldman’s chief U.S. equity strategist David J. Kostin said on Wednesday that continued “economic expansion coupled with an improvement in CEO confidence” suggests that M&A activity will increase in 2025. “The regulatory posture of the Federal Trade Commission (FTC) and the Department of Justice (DoJ) Antitrust Division that during the past four years challenged many proposed business combinations will likely be more relaxed under the incoming administration,” Kostin concluded. One of those deals that met FTC roadblocks was the Tapestry Inc.’s $8.5 billion acquisition of Capri Holdings Ltd. The FTC succeeded last month in obtaining a preliminary injunction to block the deal.
Wells Fargo Economics
Economists at Wells Fargo—Jay H. Bryson, chief economist, and Michael Pugliese, senior economist—also believe that it appears “more likely than not Republicans will hold onto their majority” in the House. All that means that while some uncertainty has been removed, there’s plenty that still remains.
Some preliminary thoughts on election results and implication for the U.S. economy include an extension of the expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which changed deductions, depreciation and other tax items that impact businesses. New tax cuts could lead to an upward revision of forecasts for real GDP growth and inflation for 2026 and 2027.
Tariffs and taxes are expected to dominate the post-election policy outlook. A 10 percent across-the-board tariff on America’s trading partners with a 60 percent levy on China shortly after Inauguration Day could result in a “modest stagflationary shock” to the U.S. economy in 2025. But the economists cautioned that President-elect Trump may decide not to impose tariffs that are so high, he could wait until later to do so, or he may elect to exempt certain products and/or countries. Moreover, current estimates are closer to an upper-bound range, rather than the midpoint of possible outcomes.
And the economists cautioned that just because a candidate proposes something during campaigning doesn’t mean it will become law. Bryson and Pugliese also noted tariffs increase federal revenues, which might help limit deficit widening from any extension or expansion of the TCJA. They also emphasized that tax policy is an area where Congress will be involved in the policymaking process, meaning that Trump can’t unilaterally change federal income tax rates.
And finally, Wells Fargo has a forecast where the Fed cuts its target range for the federal funds rate to 3 percent to 3.25 percent by the end of next year. But that could shift, with the Fed not wanting to ease policy, if new tax cuts and tariffs result in higher inflation. And Trump’s next term includes the ability to either reappoint Federal Reserve chairman Jerome Powell or replace him in May 2026.
Another issue ahead centers on immigration policy, an area where Trump has vowed to secure America’s borders. While unclear as to what sweeping policy changes might result if Congress were to implement new legislation, there’s a chance that labor force growth could slow, which could lead to “slower potential economic growth.”
Morgan Stanley
Morgan Stanley & Co. strategist Michael D. Zezas in a report Wednesday foresees a few key post-election takeaways.
While tax cuts came before policy concerns in Trump’s first term, Zezas believes the second term will see that “flipped.” That’s because tariffs can be executed through executive power, while fiscal policy change likely still requires “deliberation over much of 2025” due in part to the set of expiring TCJA tax cut provisions. He also believes that the key to the deficit debate will depend on whether there’s a red sweep or a divided government. And if compromise is required on expiring TCJA provisions, that could lead to a “lower deficit expansion number.”
Morgan Stanley’s equity analyst Alex Straton also noted that consumer sentiment seemed more positive than in typical election years heading into peak election season. And while there can be a pullback in year-over-year sales growth, there are indications of a slight acceleration in the second half in past election cycles. That suggests that there is limited risk to second-half estimates for U.S. softlines retail and brands’ stocks. In fact, in previous election years, consumer durables and apparel stocks have traded up post-election on average, with strength particularly among specialty retailers and off-pricers. He also noted that Burlington Stores, Foot Locker and Nordstrom appear most exposed to potential change in the U.S. corporate tax rate, with Lululemon Athletica, Nike and Skechers USA least exposed. As for changes in tariff policy, even if a 10 percent incremental China tariff is implemented, Foot Locker, Nordstrom, Kohl’s Corp. and Macy’s could face the most earnings per share risk in 2025, while Levi Strauss & Co. appears better positioned.
