Citi sees potential for positive stock response if Trump can sustain early lead

US equity markets have moved higher in response to the early U.S. presidential election results. According to Citi's analysis, early "election results have, at a minimum, taken a Democrat sweep off the table as Republicans appear likely to lock in a Senate majority."

With a Republican majority in the Senate appearing probable and President Trump leading in the Electoral College based on current projections (as of 11:05 ET), the S&P 500 Futures and Nasdaq 100 Futures futures both increased by 1.1%, while Russell 2000 futures saw a surge of over 2%. Moreover, 10-year Treasury yields have risen to 4.4%.

"Although Trump has a notable lead on electoral college votes (where calls have been made), there are still several key swing states in play," Citi's equity strategists led by Scott Chronert said in a note.

While the S&P 500 has shown little change quarter to date, a Trump win coupled with a Republican sweep could lead to further positive market momentum, they said.

"US equities are responding to reported election outcomes as favoring another Trump term. Trends are pointing toward a red sweep although it remains early to make that call."

Despite early optimism, Citi said that several factors, including the Levkovich index's recent movement into the euphoria zone and the S&P 500's valuation at 24 times trailing twelve-month earnings, suggests the stock market is fairly or fully valued.

Furthermore, there is a sentiment that a soft landing is already reflected in current valuations, and investors might be prematurely accounting for earnings growth anticipated in 2025.

Concerns also remain about the potential impact of Trump's tariff policies on forward growth expectations and profit margins, despite possible tax rate benefits.

Conversely, should the election results shift significantly in favor of Vice President Harris overnight, a retreat from the current futures pricing is expected.

"We would be inclined to buy into a meaningful pullback," Chronert added.