One fund manager, who spoke on condition of anonymity given the sensitivity of the issue, said he was heading into the holiday period with a bias towards the dollar and short-term debt as a hedge against the increased risk that he estimates would be triggered by a Biden withdrawal. No president has opted not to seek a second term since Lyndon Johnson in 1968, and the election is just four months away.
“Markets have already been repricing election probabilities since the debate, so the news over the past 24 hours has really just added fuel to the fire,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.
Which assets would be the favorites if Donald Trump wins?
The consensus among traders and strategists is that aTrump’s re-electiona 78-year-old Republican, would boost operations that benefit from an inflationary combination of looser fiscal policy and greater protectionism: a strong dollar, higher US bond yields and gains in banking, healthcare and energy stocks.
This is how the moves in the markets are materializing due to bets on a possible Trump mandate:
The dollar sign
He dollar gave one of the first signals about how markets would adjust to a potential Trump victory, gaining ground in the hours after last week’s debate. While the dollar has gotten a boost this year from indications from the Federal Reserve that it intends to keep interest rates higher for longer, The currency recorded a clear appreciation in real time as Trump dominated the confrontation with Biden.
“A Trump victory raises the prospect of higher inflation and a stronger dollar, given his promise of more tariffs and a tougher stance on immigration,” said JPMorgan Chase & Co. strategists led by Joyce Chang.
Potential losers from a rising dollar and Trump’s expected support for tariffs include the Mexican peso and the Chinese yuan.
Yield curve
After the debate, money managers in the $27 trillion Treasury market reacted by buying notes with shorter maturity and selling longer-dated notes, a bet known as a steepener trade.
A host of Wall Street strategists have touted the strategy, including Morgan Stanley and Barclays Plc, urging their clients to prepare for persistent inflation and higher long-term yields in another Trump term.
In a two-day span beginning late last week, l10-year bond yields rose by around 13 basis points relative to 2-year rates, at their steepest rate since October.
Signs emerged on Wednesday that traders are preparing for short-term volatility in the Treasury market, with a buyer of a so-called strangle structure, which benefits from a move higher or lower. down in futures through strike prices. Along with potential risk over the holiday weekend surrounding Biden’s candidacy, the deadline also incorporates Friday’s U.S. jobs data and testimony next week from Fed Chair Jerome Powell.
Stocks rise
The prospect of a Trump victory has supported a number of stocks that stand to benefit from perceptions of his stances on the regulatory environment, mergers and trade relations. The broader market has rallied following the debate.
The shift in voting trends since last week “has meant stocks are up as Republicans are generally seen as more business-friendly,” said Tom Essaye, president and founder of Sevens Report.
Health insurers UnitedHealth Group Inc. and Humana Inc. and banks would benefit from looser regulations. Discover Financial Services and Capital One Financial Corp. are among credit card companies that have risen on the back of Trump optimism, given the pending deal between them and speculation about possible changes to fee rules.
The aEnergy stocks such as Occidental Petroleum Corp. rose after the debate, since the former president is seen as having a pro-oil stance. Private prison sector stocks such as GEO Group Inc. have reacted to his perceived toughness on immigration.
Financial ETFs
The ETF market has recently shown a clear investment strategy: long bet that Trump will encourage deregulation and a steeper Treasury curve thanks to its potentially inflationary agenda.
The Financial Select Sector SPDR Fund (ticker XLF), a $40 billion fund, last week saw its largest inflow in more than two months, with investors adding about $540 million. So far this week, they have added $611 million amid the latest gyrations in the interest rate market.
Meanwhile, a thematic investment strategy designed to capitalize on bets on a possible Trump presidency has struggled to gain traction. An ETF that has the eye-catching MAGA ticker and invests in Republican-friendly stocks has been slow to accumulate assets and hasn’t seen any material inflows this year, data compiled by Bloomberg show.
Crypto market
Trump has shown support for the cryptocurrency industry in recent weeks by meeting with industry executives and promising to ensure all Bitcoin mining is done in the US.
That makes the token Solariumthe fifth-largest cryptocurrency with a market capitalization of around $67 billion, according to CoinMarketCap, in a potential beneficiary of Trump’s return to the White House. Asset managers VanEck and 21Shares have filed applications for ETFs that would invest directly in the digital currency.
While many consider approval a long shot, the thinking among some market participants is that a newly re-elected Trump would appoint a more crypto-friendly Securities and Exchange Commission chairman than Gary Gensler. That’s an outcome that would make a solana ETF — and a corresponding rally for the token — more likely.
The prospect of a shake-up of the Democratic ticket will also likely boost bitcoin, according to Stephane Ouellette, chief executive of FRNT Financial.
“The crazier the US political system appears, the better for bitcoin,” Ouellette says.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
