Trump ramps up stimulus expectations ahead of midterm elections, Wall Street bets on cyclical stocks strengthening

On January 13, as the US midterm elections approach, Wall Street is interpreting a series of recent economic statements by Trump as a “broad signal to promote growth,” betting that he will fully stimulate the economy and consumption before November, thereby benefiting cyclical assets. Market participants point out that from continuous calls for interest rate cuts to proposals to limit credit card interest rate caps, the core goal of the Trump administration is to maintain economic activity and affordability of living. Investment banks generally believe that this policy orientation favors cyclical sectors such as industry, raw materials, and non-essential consumer goods, rather than defensive stocks. Raymond James stated in its latest report that, against the backdrop of strong monetary and fiscal policy expectations and Trump’s frequent signals to promote growth, the market finds it difficult to bet against a cyclical economic recovery failure. UBS also pointed out that the related policies are more election-oriented, with voters still primarily concerned about prices, housing, gasoline, and interest rates. Although Trump’s proposal to cap credit card interest rates once suppressed bank stocks, UBS believes that even if the policy is implemented, it may be temporary and limited in scope, with long-term impacts on the financial sector being manageable, and sees the pullback in bank stocks as a buying opportunity. JPMorgan also remains optimistic about cyclical stocks, expecting that slowing inflation will create room for further economic stimulation in 2026, driving economically sensitive sectors to outperform the broader market. However, from an index perspective, the S&P 500 is approaching the 7000-point mark, and historical experience shows that before breaking through important integer levels, the market often experiences volatility and adjustments. BTIG pointed out that in the past five attempts to hit the 1000-point milestone, four have resulted in temporary pullbacks. Overall, in the short term, market sentiment may fluctuate due to policy uncertainties and earnings season, but most institutions still believe that, supported by growth expectations and corporate earnings improvements, cyclical stocks are likely to become a key theme in this round of market rally.