Elon Musk cutting $2 trillion of US spending is not good for markets: Expert
Elon Musk’s plans to cut US spending by $2 trillion under the Trump 2.0 administration will strengthen.
The dollar and be negative for markets, Christopher Wood, global head of equity strategy at Jefferies said in a television interview on Thursday. Musk, one of Donald Trump’s largest endorsers, has now been appointed to co-head the new Department of Government Efficiency for cutting costs of the US government.
The US government had spent $6.75 trillion during the US fiscal year 2024 (October 2023 to September 2024), which means a $2 trillion cut will amount to 32% off from this spend.
“Treasury bond market will sell-off, unless Musk does a surgery of the US administration and is able to pull off the $2 trillion cut,” he said. “This will give a deflationary shock to the US economy and can lead to investors looking elsewhere. If Trump really champions such a policy, since it would mean cutting entitlements.”
The rising bond yields would be the biggest challenge for the stock market, he said. When it comes to India, Wood said that the fall in Indian stocks, especially the mid-and small-caps, is healthy and a ‘natural correction’ after a sharp run.
“The Indian stock market has had a healthy correction of late, most particularly in the small to mid-cap space,” he said. “This is in the context of a July-September 2024 quarter (Q2-FY25) earnings season, which has seen the biggest earnings downgrades since early 2020. This seems to reflect the impact of a cyclical slowdown, and is healthy as it has impacted the most expensive part of the market.”
Wood also said the Reserve Bank of India (RBI) seems to be in no hurry to cut repo rates despite the global developments.