With Trump's victory in the latest election, BCA Research has raised the probability of a U.S. economic recession from 65% to 75%. Although Trump's policies include business-friendly measures such as tax cuts, BCA believes that the risks of trade disputes will offset these benefits and negatively impact corporate investment and household disposable income. BCA notes that potential trade conflicts under Trump's administration could further inhibit corporate investment and drag down economic growth prospects.
In the bond market, bond yields have surged due to anticipated policy changes following Trump's victory. However, BCA points out that this is unrelated to GDP growth expectations. Trump's previous tax cut policies had limited actual impact on capital expenditure. BCA anticipates that new tariff policies could exert more pressure on the market: imposing a 60% tariff on Chinese goods and a 10% tariff on goods from other countries could weaken the earnings of the S&P 500 index, potentially leading to a 3.2%-4.7% decline in earnings per share.
BCA also points out that while the Federal Reserve usually remains patient in the face of inflationary pressures from tariffs, lessons from inflation during the pandemic may prompt the Fed to tighten policy, further increasing the risk of an economic recession. Meanwhile, Trump's proposed corporate tax cuts and additional spending measures could increase federal debt by $5.35 trillion over the next decade, significantly raising fiscal pressure. BCA emphasizes that although the labor market still appears strong, employment data indicates a weakening trend, and tighter immigration policies will limit labor supply, possibly further exacerbating economic downside risks.
