Morgan Stanley and JPMorgan Chase both believe that as long as someone wins, the US stock market will rise

"Election Day" has undoubtedly set the direction for the capital markets. More and more Wall Street strategists believe that regardless of which party wins the election, the U.S. stock market will experience a rally, extending the 21% increase in the S&P 500 index this year until the end of the year.

Morgan Stanley's Chief U.S. Equity Strategist Mike Wilson and JPMorgan's strategist Dubravko Lakos-Bujas both expressed this view this week. Additionally, Jefferies strategists believe that the typical signs of weakness in the stock market in the week leading up to the election can be seen as a good start for a market rally one month after the election, suggesting that last week's market decline may be a bullish signal.

Specifically, Morgan Stanley's Wilson believes the election could become a "clearing event," opening the door for a year-end stock market surge. He expects the S&P 500 to rise to 6,100 points during this period, an increase of about 5.5% from the latest closing price. Furthermore, historical experience can also support a year-end rebound, as the U.S. stock market typically performs strongly at the end of the year.

JPMorgan's Dubravko Lakos-Bujas stated that once the election results are announced, the stock market will perform strongly. Market confidence will increase, volatility will decrease, and investors will choose to relax their hedging strategies, refocusing on Federal Reserve policies, while corporate earnings continue to show resilience, all of which are key factors driving the stock market further upward.

Deutsche Bank noted that, although the U.S. stock market has just experienced its first monthly decline since April, with a drop of less than 3%, this performance is still mild compared to the average decline of 4%-5% during presidential election periods in history. Data shows that this year, capital inflows into the U.S. stock market have been very strong, reaching about $500 billion, which is quite different from the significant capital inflows that typically occur only after elections.

Jefferies strategists analyzed that if the S&P 500 rises in the week before the election, the performance in the month following the election is often poor. However, if the S&P 500 shows weakness in the week before the election, the year-end performance tends to be the best, averaging a rise of about 4%, while the S&P 500 has dropped by 1.4%.

Moreover, with increasing market confidence, small-cap stocks are also presented with opportunities. After the presidential election, small-cap stocks often outperform the S&P 500. According to data since 1980, in election years without economic recession, the average return of the Russell 2000 index in the eight weeks following the election is 7%.

Jefferies strategist Andrew Greenebaum wrote in a report on Tuesday:

Especially in the context of strong economic fundamentals and the Federal Reserve shifting towards interest rate cuts, we believe that once the election dust settles, this will be an extremely attractive opportunity.

Goldman Sachs Projects S&P 500 Performance Under Different Outcomes

Regarding the performance of different sectors in the U.S. stock market, Goldman Sachs' Chief Trader John Flood provided a detailed projection on Tuesday, outlining the S&P 500 index's reactions under various outcomesIn summary, Goldman Sachs believes that the most likely outcome is Harris winning with a divided Congress (40% probability), with long-term growth/Nasdaq/renewable energy/China/global export themes outperforming the market, and defensive stocks outperforming cyclical stocks:

1. Trump and the Republicans win outright (25% probability, S&P 500 +3%): Financial stocks will significantly outperform the market (GSFINREG index), cyclical stocks will outperform global export stocks, and consumer stocks will perform poorly under tariffs (GS24TRFS index) and inflation, leading to a rise in the S&P 500 index. Under Trump's leadership, the Nasdaq index will perform well but will not lead, and the speed of interest rate changes may result in gains falling short of expectations. Republican policies will clearly outperform (GSP24REP index).

2. Trump wins with a divided Congress (30% probability, S&P 500 +1.5%): The elimination of risks and a decline in the 10-year yield will outweigh negative fiscal factors, but this may mean that the stock market rebound is short-lived. Tariffs and deregulation (GSXUDREG index) will continue, making increased fiscal spending quite difficult, but long-term interest rates may decline to reflect reduced fiscal spending. This is better for the overall stock market, but offers less benefit for undiversified risk aspects.

3. Harris and the Democrats win outright (5% probability, S&P 500 -3%): A significant victory for the Democrats could raise the majority from 21% to 28%, but achieving this will be challenging due to the very narrow majority in 2020. Similarly, the deregulation theme loses momentum after the election results for Harris. This combination is negative for risk assets, but to some extent, it is offset by the end of events and a decline in interest rates/weakening of the dollar. Democratic policies will clearly be the winners (GSP24DEM index), while oil will become the loser (GSENOILB index).

4. Harris wins with a divided Congress (40% probability, S&P 500 -1.5%): Long-term growth (GSXUSGRO index)/Nasdaq/renewable energy (GSCBDMRN index)/China/global exporters will all outperform the market; defensive stocks will outperform cyclical stocks; in a scenario of low interest rates, a weak dollar, and low volatility, the decline in the S&P may be bought into, and Harris with a divided Congress should benefit market consensus