With only about a week left until the US presidential election, the market has already largely priced in a Trump victory, shifting its focus to the potential policy changes after the election, which Morgan Stanley believes are crucial for the market.Recently, Morgan Stanley analyst Vishwanath Tirupattur stated in a report that in the scenario of a Trump victory, the possible policy changes can be classified into three categories: fiscal policy, immigration control, and tariffs, with tariffs likely to be implemented first, followed by immigration policy, and fiscal policy being the last to be implemented due to legislative delays.Morgan Stanley estimates that if the US implements all the tariffs currently under discussion, it could drag down real GDP growth by 1.4% and push inflation up by 0.9%.<h2>If Trump Wins: Tariffs First, Fiscal Policy Last</h2>The latest polls show that the US presidential election is very close in key swing states, but the prediction markets and capital markets both lean towards a Republican victory. A basket of stocks tracked by Morgan Stanley related to both the Republican and Democratic parties shows that Republican-related stocks have significantly outperformed.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9eef6a64-42f3-4dc6-92cd-65e237828e5d.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9eef6a64-42f3-4dc6-92cd-65e237828e5d.png"/>Morgan Stanley's analysis points out that significant fiscal policy changes require control of both houses of Congress, and even in the case of a Republican landslide, legislation will take time, thus possibly being the last to be implemented among the three categories. As immigration policy lacks implementation details, the timing is also unclear.On the other hand, given the broad discretion the US president has in trade policy, as well as Trump's expressed intentions in campaign messaging and his precedent in his first term, Morgan Stanley believes that tariff changes may occur first.In terms of economic impact, Morgan Stanley's analysis team expects that widespread tariffs will pose downside risks to growth through declines in consumption, investment spending, wages, and labor income, and pose upside risks to inflation.Morgan Stanley predicts that if the US implements all the tariffs currently under discussion, it could drag down US real GDP growth by 1.4% and push inflation up by 0.9%.In other words, in the scenario of a Trump victory, the impact on the economy is negative, but US stocks have continued to rise recently. Morgan Stanley explains that the market may anticipate that all proposed tariffs will be phased in over a longer period, with some possibly being introduced later. Additionally, the market may place more emphasis on the revival of the &#34;animal spirit&#34; driven by expectations of regulatory easing.In the bond market, a &#34;Republican landslide&#34; result is most bearish for US Treasuries. Looking back at the 2016 election, the 2-year Treasury yield rose by 50 basis points within a month of a Republican landslide, and the 10-year Treasury yield expanded by 80 basis points.However, Matt Hornbach, head of macro strategy at Morgan Stanley, pointed out that the Fed's monetary policy is significantly different from the period before the 2016 election, indicating that any rise in yields will be more limited. Unlike the market's current expectation of a 135 basis point rate cut over the next 12 months, the market was pricing in about a 30 basis point rate hike at that timeFinally, Morgan Stanley also reminds the market that the election is a known unknown. Based on polls, this race is still very close, and various combinations of presidential and congressional results are possible. Given the recent market trends and the expectations they have priced in, if Harris wins, the market will have to readjust:<blockquote>So, fasten your seat belts and hold on tight. We may be in for a wild ride</blockquote>

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Morgan Stanley expects that in the scenario of Trump's victory, due to the wide discretion of the US president in trade policy, tariffs may be the first to be introduced. As significant fiscal policy changes require control of both houses of Congress, legislation may also take a long time to implement. If the US implements all the tariffs currently under discussion, it may drag down actual GDP growth by 1.4% and push inflation up by 0.9%

- With the U.S. election just a week away, markets are pricing in a Trump victory, focusing on potential post-election policy changes.  
- Morgan Stanley analysts categorize these changes into three areas: tariffs, immigration control, and fiscal policy, predicting tariffs will be implemented first, followed by immigration policies, with fiscal changes lagging due to legislative delays.  
- The anticipated economic impact includes a 1.4% drag on GDP growth and a 0.9% rise in inflation if all proposed tariffs are enacted, despite recent stock market gains reflecting expectations of gradual implementation.

Morgan Stanley: Post-US election policy changes are crucial to the market order