"If Biden Wins, Bonds Benefit; If Trump Wins, Growth Is Favored"

Michael Wilson Morgan Stanley CIO
Revealed at Reuters Global Market Forum

There is a forecast that the bond market will benefit if President Joe Biden wins the U.S. presidential election this November. On the other hand, in a scenario where former President Donald Trump wins, the bond market is expected to be negative, but it is analyzed to be much more helpful in terms of economic growth.

Michael Wilson, Chief Investment Officer (CIO) of Morgan Stanley, stated this on the 12th (local time) while attending the Reuters Global Market Forum. He predicted that if President Biden succeeds in his re-election, tax increases will follow to offset some of the fiscal spending. It is expected to have a positive effect on the bond market as part of the process to alleviate the massive U.S. fiscal deficit problem.

Conversely, former President Trump is pushing tax cut policies, which are analyzed to potentially worsen the fiscal deficit problem. The massive fiscal deficit increases the federal government's interest expenses, lowers the currency value, and is one of the factors that sharply drives up bond yields. Bill Gross, who co-founded the global bond management firm PIMCO and is known as the 'Bond King' of Wall Street, also anticipated that a Trump victory would cause greater turmoil in the bond market in this context.

CIO Wilson evaluated that investors have recently preferred high-quality large-cap stocks whose earnings forecasts have been adjusted over the past year to a year and a half. He said, "Whether upward or downward, the earnings adjustments themselves provide good alpha opportunities for active investors." He added, "You should own stocks with positive earnings outlooks," and "Large-cap stocks are advantageous." According to LSEG IBES data, among 1,379 U.S. companies that announced earnings up to last week, 788 companies revised their estimates upward, while 291 companies revised them downward.