Sell Stocks If a Trump Win Drives a Rally, Citi Strategists Say

The stock market has been on a robust bull run, with the Dow Jones Industrial Average and S&P 500 index reaching recent highs. This growth can be attributed to "animal spirits," or market optimism without clear justification, as well as positive economic indicators and bank earnings. However, Citi strategists caution investors about selling stocks if a Trump win drives a rally, as the longer-term outlook may be negative.


Bank earnings in the third quarter have shown a positive shift towards investment banking and trading, with a reported increase in revenue. Financial leaders express optimism about a continued capital markets recovery, but high market valuations may not solely reflect positive market sentiment. Positive economic data, such as a rise in retail sales, and the Federal Reserve's potential interest rate cut, indicate a supportive environment for market growth. However, mixed signals regarding consumer sentiment, with concerns about consumer spending pulling back, as evidenced by falling American Express shares, underscore the importance of monitoring upcoming earnings and potential valuation adjustments.


Future market catalysts, such as the potential impact of the upcoming U.S. election on market sentiment, may further fuel "animal spirits" and influence market movements. Citi strategists advise investors to be cautious and consider selling stocks if a Trump win drives a rally, as the longer-term outlook may be negative. This advice is based on the potential for increased tariffs, straining relations with China and other countries, and negatively impacting retail and automaker stocks, which rely heavily on international supply chains. UBS projects a 10% decline in U.S. stocks in a "universal tariff scenario," with these industries hit hardest. Additionally, economists expect inflation to surge, potentially leading the Federal Reserve to raise interest rates, further exacerbating market conditions.

In conclusion, while the stock market has experienced a robust bull run, investors should be cautious about selling stocks if a Trump win drives a rally. The potential for increased tariffs, geopolitical tensions, and higher interest rates could lead to a pronounced and prolonged downward spiral for the stock market. Therefore, investors should consider the advice of Citi strategists and be mindful of the potential risks associated with a Trump presidency.