Composition of Trump's cabinet and policy priorities still unknown, Morgan Stanley says

Strategists at Morgan Stanley advised clients to avoid 'buying the dip' following the surprise 'sweep' of the US executive and legislative branches by Donald Trump and the Republican Party.

In particular, they were awaiting further clarity on the make-up of the new President's cabinet and what his new policy priorities would be.

"Given that Trump has eschewed the more traditional, well-known policy experts within the Republican Party, many details about the staffing of his future administration are unknown. Accordingly, we watch next for key cabinet appointments, which could shape his policy priorities regarding regulation,health care,and trade," the bank's strategists said in a research note sent to clients before the start of trading on 9 November.

Nonetheless, there were two areas where Trump was thought to be very likely to act as he now had both the ability and desire to do so, on taxes and trade.

"Congressional Republicans want tax reform, and a President Trump would likely sign on to their style of a comprehensive tax-reform measure."

That, Morgan Stanley said, should deliver a key boost to consumer spending. On the flip side, those industries which have been benefiting from existing tax preferences - such as energy and utilities - could be moderately worse off, all else equal.

On international trade, the Republican party was evenly split, the strategists said, but Trump didn't necessarily need their approval.

If he choose to, Trump could exit NAFTA, although he might face a constitutional challenge in the courts.

Even so, the Trade Act of 1974 gave him the power to impose temporary tariffs of as high as 15%.

Yet the bank referenced a study from the Petersen Institute showing that Trump's promised trade policies could cost over 4.0m private sector jobs in the States and thus backfire.

"Yet it's important we learn a lesson from Brexit here: these impacts may take time to materialize and could be less severe than first feared," the strategists added.

Similarly, the net effects of fiscal stimulus with trade protectionism are unclear," Morgan Stanley said.