Since the results of the U.Selections became clear, the so-called “2.0 era” has been widely viewed as a crucial variable that could steer the trajectory of America's economy and financial markets in the near futureMarket analysts express concerns that a mix of domestic tax cuts, increased tariffs, and an aggressive stance on immigration may breathe new life into inflationary pressuresSuch fiscal expansion policies pose risks of excessive issuance of U.Sdebt, while stocks are currently trading at historically elevated valuations.

In this complex backdrop, what does the future hold for the U.Seconomy and markets as we step into the 2.0 era? Can the economy achieve a "soft landing"?

The economic outlook for the U.Shas stirred significant debatePreviously, the terms "hard landing" and "soft landing" dominated discussions, but this year some market participants have introduced the notion of a "no landing" scenario

Investor anxiety centers around the risk that during his second term, supported by a Republican majority in Congress, policies such as tax cuts, tariffs, and anti-immigration rhetoric might reignite certain economic risks, creating conditions under which the economy might not naturally decelerate.

Recent reports indicate a slight uptick in short-term, medium-term, and long-term inflation expectations among U.Srespondents as of November 9. Analysts anticipate that the consumer price index (CPI) set to be released on November 11 will display a modest increase as well.

In recent observations, experts have suggested that achieving a "soft landing" remains a plausible scenarioAccording to an analyst, "Our baseline view continues to indicate that the U.Seconomy appears set for a 'soft landing.' We see prospects for moderate growth and inflation without recession." Moreover, the performance of the private credit market may contribute to a looser financial environment, while also facilitating capital flow to firms that may have difficulty accessing other sources

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Importantly, the spillover effects from the global economic slowdown impacting other major economies are considered minimal in the U.S., and the emergence of artificial intelligence stands to provide financial yields and capital accumulation opportunities.

Concerning inflation forecasts, the analyst pointed out that recent data align with expectations, maintaining that core personal consumption expenditures (PCE) are likely to remain stable throughout the remainder of the year, with inflation rates hitting the "2-point something" range in 2025 remaining plausibleThe Federal Reserve has also indicated a wait-and-see approach regarding inflation judgments until the government puts forth clearer policy proposals.

Investor sentiment extends to the movement of U.Sstocks and bonds during this new eraOne financial report noted an inclination to slightly increase allocations in American equities for multi-asset portfolios

However, perspectives on the U.Sstock market vary greatly among financial institutionsSome view a potential rate cut by the Federal Reserve as beneficial for stocks, yet argue that current valuations, whether compared to other markets or historical averages, appear exorbitantThe recent surge driven by the excitement surrounding artificial intelligence has also faced skepticism, particularly as concerns arise over the profitability of many firms, excluding tech giants like NVIDIA, which may not sustain their lofty stock prices.

By November 9, despite notable gains among Chinese stocks, the overarching trend remained downward for major U.Sindexes, with semiconductor stocks, particularly NVIDIA, dragging down the performance of the Nasdaq, which was the worst-performing among major indexesExchange-traded funds (ETFs) across various sectors, including regional banks, financial institutions, and semiconductors, generally declined by over 1% during the same period.

Analyzing the market dynamics, the analyst shared insights: "While it’s true that U.S

stock valuations are indeed elevated, this can be attributed to the ongoing disparities between U.Sgrowth, return on equity (ROE), and technological leadership compared to other regionsHistorically speaking, high valuations tend not to serve as reliable predictors for 12-month returns, indicating that, while high multiples restrict future expansion potential, they do not inherently trigger market corrections unless catalyzed by external factorsUnder these circumstances, profit growth will be the primary driver of stock prices, with the S&P 500 continuing to reflect solid prospects, projecting an 8% EPS growth for the coming year and exceeding 11% in 2025.

Highlighting the impact of artificial intelligence, she pointed to two significant observationsFirst, metrics related to revenue, corporate commentary, and distribution channels suggest that demand for AI remains robustMajor corporations are ramping up capital expenditures, with a persistent demand for AI chips that still outpaces supply

More software firms are reporting successful business application casesSecond, while AI served as the main catalyst for stock market gains in the first half of the year, it has not carried the same weight during the rebounds in the second half"In fact," she noted, "large-cap tech stocks, excluding Tesla, remain below the peak levels reached in JulyThe recent strong performance has stemmed from broad improvements in profitability across various sectors, partly due to convergence in earnings growth." Thus, while AI's valuation may have diminished, other sectors have evidenced multiple expansions, leading to a healthier market development and mitigating risks associated with high-growth stocks.

As we assess how the 2.0 era may unfold against the backdrop of reduced interest rates from the Federal Reserve by 2025, sectors such as defense, energy, and finance are anticipated to post favorable performance

The analyst indicated that the continuation of policies may favor numerous industriesIn the defense sector, despite lacking a sufficient majority to block legislation, the government has expressed intentions for record defense spending, likely funneling more funds and contracts to defense contractorsIn terms of energy, particularly oil, gas, and pipelines, the potential for permitting reforms and relaxation of restrictions on LNG exports could stimulate growth and investment in those areasFurthermore, the finance sector might benefit from a more favorable environment for banks and financial institutions due to possible relaxations concerning regulatory frameworks stemming from Basel III, enhancing their lending capabilities and capital market activities.

On the subject of U.Sbonds, the analyst remains optimistic about their future prospects despite the backdrop of fiscal stimulus fears in the 2.0 era, with concerns arising from the likely increase in debt issuance and budget deficits

Negative outlooks on bonds have surfaced as the aforementioned policies could rekindle inflation, thereby potentially undercutting expectations of the Federal Reserve's interest rate cuts.

While acknowledging the risks of inflation reigniting and impacting the trajectory of future rate cuts by the Federal Reserve, the expert maintained, "We believe that U.STreasury bonds still present attractive investment opportunities, particularly given the higher starting yields associated with quality fixed incomeHistorically, high starting yields have been strong predictors of future returns over the next 3-5 yearsTherefore, investors may want to consider incorporating U.Sbonds into their portfolios, alongside exploring inflation-linked bonds and other physical assets to hedge against potential inflationary pressuresA balanced investment strategy incorporating high-quality bonds can effectively manage risks while providing favorable risk-adjusted returns."