The Republican party’s win in the 2024 elections could pave the way for significant policy changes, according to Morgan Stanley. The global financial services firm anticipates growth and innovation, particularly in the technology and natural gas sectors. However, it also cautions that concerns over trade tariffs, immigration policies, fiscal sustainability, and the scope and timing of new policies may constrain the broader economic outlook.
Morgan Stanley’s Picks
Markets have reacted positively to President-elect Donald Trump‘s victory and have been trading higher than the pre-election levels. However, slower-than-expected deregulation and shallower tax cuts could impact the markets, Morgan Stanley's Global Investment Office believes investors should keep an eye on the following areas:
Energy
As per Morgan Stanley, the energy sector faces a divided future. Trump’s deregulation could benefit traditional energy, but oil’s outlook is uncertain due to potential oversupply and weak global demand, especially from China. In contrast, natural gas may see growth from strong European demand and increased domestic use for electrification and AI-powered data centers. The clean energy sector could face challenges, if Trump rollbacks Biden’s 2022 Inflation Reduction Act tax credits. But a full repeal seems unlikely due to the benefits for Republican states.
Invesco S&P 500 Equal Weight ETF RSP has risen by 17.36% on a year-to-date basis. While, the iShares Russell 1000 Value ETF IWD and Vanguard High Dividend Yield Index ETF VYM advanced by 18.56% and 18.96%, respectively, in the same period, underperforming the S&P 500 on a year-to-date basis, which has grown by 28.41% in the same period. Whereas, ProShares S&P 500 Ex-Energy ETF SPXE grew by 28.85% year-to-date, outperforming the index.
Defense
U.S. defense spending is expected to stay robust amid rising geopolitical tensions, says Morgan Stanley. However, European defense stocks have outperformed U.S. ones due to uncertainty about U.S. NATO involvement and increased spending by other NATO members.
Trump during his first post-election network interview with NBC News on Sunday said “If they’re paying their bills, and if I think they’re treating us fairly, absolutely, I would stay with NATO.”
Moreover, technological advancements in cybersecurity, AI, drones, and other areas are also favoring smaller, specialized companies over traditional defense giants, added Morgan Stanley.
As per the Benzinga Pro data, the S&P 500 Aerospace & Defense Industry Index has risen by 15.78% year-to-date, whereas Lockheed Martin Corp LMT, RTX Corp RTX and iShares U.S. Aerospace & Defense ETF ITA have grown by 12.48%, 38.45% and 20.15%, respectively in the same period.
Technology And Communication
According to Morgan Stanley, the technology sector may see mixed outcomes. Cryptocurrencies and AI industries could benefit from Trump’s favorable stance. Whereas investments in reshoring semiconductors through the CHIPS Act may strengthen those areas, highlighting AI as a national security priority. However, social media and information companies may continue facing regulatory and antitrust challenges.
Major AI payers in the U.S. stock markets include Nvidia Corporation NVDA with a 195.7% year-to-date performance and Microsoft Corporation MSFT 19.6% growth in the same period. Whereas, Amazon.com Inc AMZN and Alphabet Inc GOOG rose by 51.42% and 26.46% year-to-date, respectively.
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