Will sequestration affect the stock market

Republican lawmakers have spent the past eight years bashing President Barack Obama as fiscally irresponsible, but investors are now betting that Donald Trump could run much bigger budget deficits than Democratic rival Hillary Clinton had planned. Those bets might underestimate potential political pitfalls, but expectations expansionary fiscal policy will boost economic growth and boost inflation are part of the reason stocks quickly recovered from the swoon that sent futures sharply lower as a surprise Trump victory in the presidential election became apparent late Tuesday night.

And it is also part of the reason why Treasury bonds sold off sharply, sending yields soaring. Many Republican lawmakers, including House Speaker Paul Ryan, would likely be reluctant to significantly expand the deficit, however, which could ultimately limit the scope of fiscal measures, analysts said. Stocks charged higher on Wednesday and followed through to the upside on Thursday, with the Dow Jones Industrial Average DJIA, Infrastructure stocks have performed well this year as both Clinton and Trump pledged to boost spending on dilapidated roads, bridges and other items, but appeared to top in the summer.

The largest infrastructure exchange-traded fund, the iShares Global Infrastructure ETF IGF, Infrastructure ETFs rally in as presidential candidates float new policies. With Republican lawmakers likely to want to rein in public debt, the Trump administration is expected to work with the states to use public-private partnerships to fund much of the infrastructure spending, which would likely help support large construction groups and real-estate investment trusts that are already active in the sector, the Pavilion analysts said.

Trump also has criticized the automatic military-spending cuts that were enacted under budget sequestration in Presumably, Trump will move to reverse the trend given his support for expanding military capabilities across the board, the Pavilion analysts said, which means most domestic-focused names in aerospace and defense should benefit.

Reduced revenues could be partly offset by a cap on itemized deductions and other measures. The tax measures will have the biggest impact on the deficit and debt levels under the Trump plan.

The yield on the year Treasury note TMUBMUSD10Y, Yields rise as bond prices fall.

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Brenner and others also pointed to the possibility that Congress would seek to at least partly reduce the revenue hit from tax measures by instituting a tax holiday on repatriation of profits held overseas by U.

The holiday would see corporations encouraged, or perhaps even required, to bring back profits, which would be taxed at a lower rate, providing a near-term revenue windfall.

It will be interesting to see how Republican lawmakers, including tea party conservatives, react. In October , every Republican senator voted against suspending the debt ceiling.

At the time, Republicans were in the minority in the upper chamber. Republicans are now in the majority.

William Watts is MarketWatch's deputy markets editor, based in New York. Follow him on Twitter wlwatts. By using this site you agree to the Terms of Service , Privacy Policy , and Cookie Policy. Intraday Data provided by SIX Financial Information and subject to terms of use.

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Infrastructure ETFs rally in as presidential candidates float new policies With Republican lawmakers likely to want to rein in public debt, the Trump administration is expected to work with the states to use public-private partnerships to fund much of the infrastructure spending, which would likely help support large construction groups and real-estate investment trusts that are already active in the sector, the Pavilion analysts said.

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