Trump-Related Assets as a Barometer for U.S. Election-Year Uncertainty

The U.S. stock market has long been a barometer for political risk, with presidential elections acting as a catalyst for volatility. Nowhere is this dynamic more pronounced than in the case of Donald Trump-related assets, which have historically mirrored the turbulence of his political campaigns and policy promises. As the 2024 election cycle unfolded, the interplay between Trump's re-election prospects and market behavior offered fresh insights into how political uncertainty translates into financial market movements.

Historical Context: Trump and the Market's Love-Hate Relationship

Presidential elections are rarely neutral events for financial markets. According to a report by U.S. Bank investment strategists, the S&P 500 has historically shown minimal correlation with the outcome of single-party control of the White House or Congress over the past 75 years. Instead, divided-government scenarios-where power is split between parties-have often led to more stable market returns. However, Trump's candidacy has repeatedly disrupted this pattern. His 2016 and 2020 campaigns, marked by pledges to overhaul trade policies and regulatory frameworks, triggered sharp swings in the VIX (the CBOE Volatility Index), a key gauge of market fear.

The 2024 election amplified these dynamics. As the race between Trump and Kamala Harris tightened in the final months, the VIX spiked to levels not seen since late September 2024, reflecting heightened uncertainty. Yet, once Trump secured victory with 295 electoral votes, the S&P 500 surged 2.5%, and the VIX plummeted, underscoring the market's relief at a decisive outcome. This pattern-volatility preceding resolution-has become a hallmark of Trump-related political risk.

Policy Promises and Sectoral Implications

Trump's policy announcements during the 2024 campaign further intensified market reactions. Goldman Sachs analysts noted that his proposals, including a 20% additional tariff on Chinese imports and a push for deregulation, were priced into financial markets months before the election. These policies, while potentially boosting sectors like energy and financials, also raised concerns about inflationary pressures and trade tensions. The U.S. Treasury yield curve steepened in response, with 10-year yields rising to 4.43% as investors anticipated a more expansionary fiscal environment.

Comparisons to 2016 and 2020 reveal a shift in market behavior. In 2016, volatility expectations linked to the VIX emerged only in October, whereas in 2024, they materialized as early as March. This earlier pricing of uncertainty suggests that markets are increasingly treating Trump-related assets as a leading indicator of political risk, rather than a lagging one.

Legal Challenges and the Shadow of Uncertainty

Legal developments also played a pivotal role in shaping market sentiment. Trump's post-2020 election legal battles and the 2024 campaign's focus on mail-in ballot reforms kept volatility elevated. Morgan Stanley analysts observed that the potential for delayed election results-similar to 2020-had investors bracing for prolonged uncertainty, even as the final outcome in 2024 proved decisive. This duality-between the fear of protracted disputes and the relief of resolution-has become a defining feature of Trump-era elections.

The Global Dimension

The impact of Trump-related assets extends beyond U.S. borders. As CEPR researchers highlighted, countries like China and Mexico saw heightened volatility in their currency markets due to fears of U.S. trade policy shifts. The Chinese yuan, for instance, exhibited increased sensitivity to Trump's re-election odds, with a one standard deviation rise in his probability of victory correlating with lower equity volatility and higher stock prices in the U.S. This global ripple effect underscores the interconnectedness of political risk and market behavior in an era of protectionist rhetoric.

Looking Ahead: A Trump-Driven Outlook

For investors, the 2024 election offers a blueprint for navigating future political cycles. UBS analysts project that a Trump victory will likely favor sectors aligned with his policy agenda, including small-cap stocks, energy, and financials, while underperforming in renewable energy and technology hardware. Meanwhile, the S&P 500 is forecast to rise by approximately 9% over the next 12 months, driven by robust earnings growth and a more business-friendly regulatory environment.

Yet, the path forward is not without risks. Trump's legal challenges and the potential for legislative gridlock-despite a likely Republican-controlled Congress-could reintroduce volatility. The key for investors will be to balance the short-term tailwinds of policy clarity with the long-term uncertainties of a polarized political landscape.

Conclusion

Trump-related assets have evolved into a critical barometer for U.S. election-year uncertainty. From the VIX's sharp swings to sector-specific responses, the 2024 election reaffirmed the market's sensitivity to political risk. As the 2028 cycle looms, investors must remain attuned to the interplay between policy promises, legal developments, and global market reactions. In an era where politics and finance are increasingly intertwined, understanding this dynamic is not just prudent-it is essential.