Morgan Stanley: Initial Thoughts On Implications Of Trump 2.0 For Credit

By Vishwanath Tirupattur, global head of Quantitative Research at Morgan Stanley

American voters have given the Republicans a decisive electoral victory. President-elect Trump has won both the Electoral College and the popular vote, and the Republicans have captured the Senate. While control of the House of Representatives remains unclear and it could take days or weeks to determine the outcome, a Republican sweep seems more likely than not. Now that much of the election uncertainty is behind us, investor focus is shifting towards potential policy changes and market reactions. In this Start, we offer our initial thoughts on the implications for credit markets.

The notion that credit likes 'moderation' in both the economy and corporate activity has anchored our constructive view on corporate credit, reflected in our historically tight spread targets. Excess returns in credit have typically been strongest with real GDP growth broadly in the 2% range – neither hot nor cold. How could changes in policy affect moderation in this sense? We have written extensively about policy in a second Trump term (see here, here, here, and here), notably on fiscal policy, trade/tariffs, immigration, and regulation, as well as the sequencing of policy implementation. It seems reasonable to assume that tariffs would come first since the president has broad discretion on trade policy.