Investors Bet Big on "Trump Trades" as Election Volatility Fuels Market Dynamics
1min read As the U.S. presidential election approaches, a rare occurrence has captured the attention of traders at Goldman Sachs. Despite the CBOE Volatility Index (VIX), often referred to as the "fear index," indicating heightened volatility above 20, investors maintain a bullish outlook on the U.S. stock market. This is a sentiment not commonly observed by veteran traders.
Brian Garrett, Managing Director at Goldman Sachs, highlights a noticeable shift in investor strategies. Previously, the prevailing attitude was one of caution, with clients opting to reduce risk and adopt a wait-and-see approach until election results became clear. However, this stance has pivoted towards an assertive engagement with "Trump trades," such as shorting tariff baskets and investing in Republican policy-themed portfolios, as well as crypto ETFs.
According to Garrett, conversations with investors reveal a prevalent strategy: “Going long and deploying more capital post-election.” Significant changes in the implied volatility of major indices such as the S&P 500, NASDAQ 100, and Russell 2000 underscore the obstacles faced by options traders, necessitating protective strategies like delta hedging.
Garrett finds post-election stock or thematic investments intriguing. Different electoral outcomes are expected to significantly influence various sectors and industries, potentially leading to mixed results in diversified index trades. He recommends strategies that leverage a steep VIX curve, such as using funds from December VIX put options to acquire November ones, and sees potential in gold investments amid Goldman’s continued bullish stance.
Chris Spahr, Director of Synthetic Sales at Goldman Sachs, notes a complete reversal of the previous month’s cautious sentiment. Market participants are now decisively leaning into so-called “Trump trades” amid expectations of a strengthened Trump advantage in the elections. This pivot illustrates a growing belief in a possible Republican wave sweeping Congress.
Jon Shugar, Head of Equity Cross-Asset Sales, observes that many investors are positioning themselves to increase exposure to U.S. equities post-election, expressing continued confidence in gold and the benefits of potentially relaxed financial regulations. The possible outcomes of the election could lead to significant movements in forex markets, influenced by either a Harris election victory or a continued Trump presidency.
Lee Coppersmith, Director of Derivatives Sales at Goldman Sachs, has seen a shift in focus from strategies adjusted for a Republican-led election result to those more aligned with Democratic policies, like those in solar/renewable energy. This transition reflects an increased interest in industries potentially benefiting from deregulation and mergers and acquisitions.