Dow, S&P and Nasdaq Make New Record Highs, Is There More to Come?

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Our View

My head is spinning! The election is over, but there is still a lot on the event calendar, starting with today's Fed rate cut. As pumped up as the markets were yesterday, today could be another day of wild swings. While there is no question about two 25bp cuts in November and December, what happens when Trump takes over?

According to Nomura:

• Donald Trump has won the presidential election. Republicans will take control of the Senate and appear more likely than not to retain control of the House (although an official call for the House will likely be delayed).

• We expect tariffs and tax policy to be the focus for economic policy early in a second Trump administration. Tariffs are likely inflationary and negative for growth.

• We now expect just one Fed cut in 2025, with policy on hold until the inflation shock from tariffs has passed. We expect some additional easing in 2026 but have raised our terminal rate forecast to 3.625% from 3.125%. An eventual change in Fed leadership is likely by 2026, but it will be difficult for Trump to significantly impact monetary policy.

• The fiscal outlook will likely deteriorate under a unified government. We expect higher debt and deficits than current CBO projections. However, tariffs can raise significant front-loaded revenue.

According to B of A:

• Oct jobs report sealed the deal for a Nov cut

  We expect the Fed to cut rates by 25bp at its November meeting. Even accounting for hurricane and strike distortions, we believe the Oct jobs report was soft enough to essentially seal the deal for a cut later this week and significantly increase the chances of another 25bp cut in Dec. The FOMC statement should be little changed.

• Powell: still optimistic, still data dependent

  We also don't expect much change in Chair Powell’s message. He is likely to reiterate that i) the economy remains on firm footing, ii) the risks to the Fed’s dual mandate are balanced, and iii) the FOMC still feels inflation is heading back toward the 2% target. We expect Powell to emphasize data dependence once again and provide little forward guidance on the December decision or the 2025 policy path.

• “No comment” on the election

  Powell is likely to get questions about the election, especially if the outcome is known by the time of the meeting. He will probably highlight that the Fed will stay in its lane and react to incoming data instead of commenting on the next administration's policy agenda.

• Looser fiscal = tighter monetary policy

  The elections will have far greater consequences for the path of Fed policy than anything Chair Powell says in his press conference, in our view. All else equal, we think further fiscal expansion means a higher terminal Fed funds rate.

• Tariffs: once bitten, twice shy

  The Fed’s response function to tariffs is harder to pin down. Some argue they will look through the inflationary impact of tariffs as a one-off price level adjustment and focus on the negative growth consequences. However, the Fed erred in 2021 by assuming supply shocks would have a “transitory” impact on inflation. Therefore, all else equal, policymakers could err on the side of caution by pausing the cutting cycle if large tariff increases are announced.

Nomura is not the only major bank saying Trump will slow down the rate cuts as soon as he takes office, which may explain why Powell won't comment on the election.