US election – is the Trump Trade back?
The US election is around the corner. How does Trump influence US markets?
US election outlook
America’s seven battleground states are all polling within a percentage point or two, ahead of the presidential election says pollster Nate Silver in The New York Times. Odds of 50-50 for Donald Trump versus Kamala Harris “is the only responsible forecast”. But if pushed, “my gut says Donald Trump”.
Traders have the same intuition. On top US betting markets, Trump has more than 60% odds of winning next week, with Harris below 40%. In financial markets, the “Trump trade” is back, says the Dealbook column in the same paper. Oil firms and cryptocurrencies – which should do well under the Republican – are rallying.
Though Trump wants a weaker dollar, the greenback is rising as markets move to price in the inflationary impact of his tariff plans. Bitcoin is the “quintessential Trump trade”, says Richard Abbey on Bloomberg. Trump’s promises to support deregulation have made him “the darling” of the crypto industry. Bitcoin has leapt more than a third since early September, tracking Trump’s rising chances of winning.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
For financial markets, the biggest impact could come from higher bond yields (bond yields move inversely to prices). Investors have been selling off US government debt on expectations that a Trump administration will let inflation rip. Yields on the benchmark US ten-year Treasury have risen from 3.6% in September to 4.2% now, a “massive move” in bond-market terms, says Ben Levisohn in Barron’s. The story goes that Trump will be more spendthrift than Harris, necessitating higher borrowing costs for the US Treasury.
Investing with your politics is a bad way to lose money...
Still, reading the tea leaves is rarely straightforward. The bond spike could have just as much to do with strong US growth and bets on slower rate cuts ahead. History shows that “investing with your politics is one of the worst ways to lose money”. US equities tend to rise “regardless of which party controls the White House”. Forces beyond domestic politics ultimately matter more for investors, agrees Jim Reid of Deutsche Bank. Energy shares, for example, did far better under Joe Biden than they did under pro-fossil-fuel Trump.
Regulation matters, but world events are more decisive. There is now an “overwhelming consensus” among hedge funds that Trump is heading for victory, says Katie Martin in the Financial Times. That could be a misreading of polls that still show a virtual “coin toss”. Some “big egos” on Wall Street will look very silly if Harris prevails. Indeed, “market pricing is a lot more cautious”, says George Saravelos of Deutsche Bank. For now, the US stocks most sensitive to Trump’s tariff plans are “moving sideways”, rather than selling off.
Similarly, the euro, which could approach parity with the dollar in a full-blown trade war, is still at $1.08. “Hesitant to make big wagers that could jeopardise this year’s strong gains”, some asset managers are cutting market exposure before the vote, says Caitlin McCabe in The Wall Street Journal. This year has served up market-negative election surprises in Mexico, India and France, says Zachary Kurz of PinnBrook Capital. Why should the US be any different?
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and Emerging Markets, where his experience living in Beijing and conversational Chinese prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
Should you buy JPMorgan's top emerging market trust?
The JPMorgan Emerging Markets Trust fund has outperformed its benchmark over the long term and offers good value
By Max King Published
-
Nationwide: UK house prices rise at fastest rate in two years
According to data from Nationwide, house prices jumped by 3.7% year-on-year last month, up from 2.4% in October
By Chris Newlands Published
-
Vaccine stocks slump after RFK Jr picked as Trump's health secretary
Drugmakers' shares slumped after RFK Jr, a vaccine sceptic, was appointed as the next US Health Secretary. How will this affect drug companies?
By Dr Matthew Partridge Published
-
Wall Street enjoys a Trump sugar rush – will it crash?
Wall Street investors could be repeating the mistakes they made in Trump's first term, when “Trump trades” enjoyed a short pop and then underperformed
By Alex Rankine Published
-
Will bond vigilantes come for Donald Trump?
Bond vigilantes could make a comeback if Donald Trump follows through on some of his promised policies
By Simon Wilson Published
-
Elon Musk enters the White House – what happens now?
Elon Musk has achieved the seemingly impossible many times before in the business world. But will he be able to cut the US government down to size?
By Jane Lewis Published
-
What Trump's presidential election win means for the US economy
What will Trump's US presidential election win actually mean for Americans and the rest of the world?
By Stuart Watkins Published
-
Media mogul James Dolan takes straight shot at the limelight
Controversial media mogul James Dolan has been hailed as a visionary for his Sphere arena in Las Vegas. But can he square the circle financially?
By Jane Lewis Published
-
Will bitcoin be banned?
Bitcoin is often touted as a hedge against inflation, but it's a threat to the whole scammy system
By Bill Bonner Published
-
A bull market on borrowed time
While the US enjoys a bull market, it may not last. Will the US rate cut push stock prices down?
By Alex Rankine Published