The rise in the 10-year Treasury yield above 4.3% has raised alarm among some analysts, who contend the rate move has already been large and swift enough to raise questions about further stock-market gains.

Read: 10-year Treasury yield crosses ‘line in the sand’ that begins to spell trouble for stocks

Stocks were showing strong gains Tuesday, with the Dow Jones Industrial Average DJIA up 340 points, or 0.8%, while the S&P 500 SPX rose 0.9% and the Nasdaq Composite COMP advanced 1.1%. The S&P 500 has rallied nearly 21% so far in 2024, hitting numerous records, while the Dow has gained 11.7% and the Nasdaq has surged 22.7%. Equities have largely moved sideways overall in recent sessions.

A sweep, in which a Trump win is accompanied by Republican control of the House and Senate, would likely see an acceleration of the stock-market rally into year-end, provided it isn’t untracked by a jump in yields, Essaye said.

A Harris win with a divided Congress would allow stocks to continue drifting higher, but probably not accelerate the rally, he argued. That scenario would remove the risk of disruptive policies for the next two years and allow investors to re-focus on positive macroeconomic fundamentals, including solid growth, Fed rate cuts and declining inflation, Essaye said.

A Democratic sweep would be a negative for equities, Essaye said.

“Democrats are viewed as less pro-growth than Republicans and with control of Washington, worries about increased regulation and tax increases would likely cause investors to sell first and ask questions later, especially given the large gain [year-to-date], he said.

A decline of more than 1% wouldn’t be a surprise and a pullback of 5% to 10% would be likely in the weeks following the election, with cyclical sectors lagging behind as megacap tech and defensive sectors like healthcare, utilities and staples — along with foreign markets — see relative outperformance.

A Democratic sweep would also likely see the 10-year Treasury yield fall back toward 4%, he said, as markets price in slower economic growth and a slower rise in the deficit, but the decline probably wouldn’t be enough to offset growth concerns.

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