US election: is the Trump Trade back?

GOP Presidential Candidate Donald Trump Holds Campaign Rally In Wilkes Barre, Pennsylvania

(Image credit: Michael M. Santiago / Staff)

published 2 November 2024

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.

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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.

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?

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.