Is a new high for U.S. stocks expected after the election? Morgan Stanley: FOMO psychology supports it, with the S&P looking at 6,100 points by the end of the year

Last week, in the week before the U.S. presidential election, the three major U.S. stock indices collectively retreated, but some Wall Street institutions are optimistic about a rebound in U.S. stocks after the election. For example, Morgan Stanley's chief U.S. equity strategist Mike Wilson expects that the U.S. stock market could rise by more than 6% by the end of this year.

Wilson believes that with the conclusion of the U.S. presidential election and the fear of missing out (FOMO) on year-end gains starting to take effect, it is not impossible for the S&P 500 index to continue rising in the final stages of 2024, potentially increasing by another 5% from current levels. However, he also warns that due to the lack of clear catalysts, the enthusiasm for this stock market rally may fade as 2025 approaches.

In an interview with Bloomberg Television on Monday, November 4, Wilson stated:

"I think, in the event of some sort of clearing event, there won't be too much panic, and people will feel optimistic about the situation. We might see the S&P 500 reach 6000 points."

Wilson went on to say that the S&P 500 index could rise as high as 6100 points, but it will not exceed this level "under any circumstances" this year due to high valuations, and the price-to-earnings ratio is unlikely to expand further as we enter 2025.

A level of 6100 points would mean that the S&P 500 index would rise nearly 6.5% from last Friday's closing level and about 4% higher than the record closing high set on October 18.

A series of polls released last Sunday by ABC, NBC, and The New York Times showed that, overall, Harris and Trump are evenly matched, with Harris having a slight edge over Trump in most swing states. Wall Street generally expects that after clearing the obstacles of the U.S. presidential election on Tuesday and the Federal Reserve's interest rate decision on Thursday, U.S. stocks will be able to resume their upward trend.

Wilson also anticipates some form of rebound after the election. However, his view is that the most favorable election outcome for U.S. stocks is not Trump being elected president and the Republican Party sweeping both houses of Congress; the market prefers uncertainty. He said:

"Regardless of who is elected, we will have to undergo some form of fiscal adjustment. This will bring uncertainty again."

"I don't think a Republican landslide is the most favorable outcome for the stock market. I think the best outcome might be Trump being elected while Congress is divided. The market likes uncertainty. They don't like one party in control."

JP Morgan strategist Dubravko Lakos-Bujas also expects that once the results of the U.S. presidential election are announced, the U.S. stock market will climb in the final stages of 2024, especially in the case of a political deadlock. In his report on Monday, he wrote:

"In any deadlock, we believe that as uncertainty dissipates, volatility decreases, and hedges are unwound, the stock market will reprice, and investors will refocus on the Federal Reserve as the economy and corporate earnings remain resilient."

Wall Street Journal earlier mentioned that the Morgan Stanley team led by Wilson believes that if Trump wins the election and there is a blue sweep, the yield on U.S. 10-year Treasury bonds is expected to experience limited fluctuations due to improved economic growth expectations, which would be a positive signal for the stock marketIn this case, cyclical stocks such as financial and industrial stocks will perform prominently.

At the same time, Morgan Stanley warns that if U.S. Treasury yields rise "significantly" due to market concerns about fiscal prospects, risk-averse sentiment in the stock market will increase, impacting consumer stocks sensitive to tariffs.

If Harris is elected president and Congress becomes divided, meaning the Democratic Party fails to secure a majority in both the House and Senate, only becoming the majority party in one, consumer stocks affected by tariffs and renewable energy stocks may outperform the market in the short term. In this scenario, a decline in interest rates may also benefit consumer stocks sensitive to housing, while financial stocks, industrial stocks, and sectors sensitive to commodities may perform poorly