Investing.com – After several days of euphoria and series records following Donald Trump’s victory in the US presidential elections, US stocks corrected yesterday, against a backdrop of profit taking, but also due to awareness that a myriad of risks could at any moment cause a sudden reversal of the situation.
In a recent note, the bank Morgan Stanley (NYSE:) highlighted some of these risks, including rising Treasury yields, which hit a more than 4-month high of 4.479% on Election Day, and is currently at 4.437%.
Indeed, although Trump’s policies are likely to support the economy, they also risk stimulating inflation, notably through tariffs.
So far, that hasn’t been enough to deter investors, but Morgan Stanley says further increases could hurt stocks. Remember that for their part, JP Morgan analysts mentioned the 5% threshold as the trigger for the end of the post-election rally.
Morgan Stanley is also concerned about the rise in the US dollar, which could penalize large exporting capitalizations. In this regard, it should be noted that the reached a peak on Tuesday at 106.18, a threshold which had not been visited since the end of April.
“If dollar strength continues at the current pace through the end of the year, it could slow multinational earnings per share growth for Q4 24 and 2025,” Morgan Stanley wrote.
Analysts also pointed out that stocks are increasingly overvalued, particularly due to speculation related to the AI rally.
“Specifically, the S&P’s y/y change has rarely been so disconnected from the magnitude of the earnings revision,” the analysts write.
Contrary to what the initial reaction of the markets may have suggested, the election of Trump has not improved the outlook in all areas, and the rapid rise of the US stock markets implies a risk of violent correction, or even crash. if these bearish factors become more pronounced.
We should also not forget that Trump plans to launch a real trade war against the whole world, and especially against China, which could also heavily impact American markets, once this becomes a reality.
