icon
icon
icon
icon
Upgrade
icon

Trump's Rally Incident Is Shaking Both Election Dynamics And Financial Markets

AInvestMonday, Jul 15, 2024 7:46 am ET
2min read

A clenched fist pointing to the sky, an unchanging face that appears even more resolute under the blood flowing from the right ear and the sunlight, and a bright American flag fluttering in the wind...This is a photo from Trump's rally on Saturday, and Trump was looking like a hero.

More importantly, after the attack, the possibility of Trump re-entering the White House has increased.

Before yesterday, Joe Biden's chances of re-election were slim. After yesterday they are virtually nonexistent, Republican pollster Whit Ayres said when talking about the future direction of the presidential election.

In analysts' view, this view will become more apparent in the future, as bets on Trump and the Republicans taking over the U.S. government in the market will become increasingly frequent, whether it is foreign exchange bonds or even virtual currencies.

For us, the news does reinforce that Trump's the frontrunner, said Mark McCormick, head of global foreign exchange and emerging market strategy at Toronto Dominion Bank. We remain US dollar bulls for the second half and early 2025.

Michael Purves, CEO and founder of Tallbacken Capital Advisors, wrote in an email: If (Trump) wins and does this stuff he said he is going to do, you are going to see a much bigger selloff in the back-end of the bond market.

At present, the long-term U.S. Treasury yield has risen with the possibility of Trump's return to the White House. Although the trend of the still inverted Treasury curve is mainly driven by the expectations of the Fed's first rate cut in this cycle, the gap between the 2-year and 30-year Treasury notes has narrowed from negative 30 basis points around the time of the Biden-Trump debate to negative 6 basis points.

The more closely watched spread between the 2-year and 10-year Treasury yields is at negative 27 basis points, half the level three weeks ago.

I think the bond market is the big (election) trade this year, rather than equities, Purves wrote.

In addition, the stocks of small and medium-sized listed companies in the United States are considered to be favorable, and the traditional energy, public utilities, and banking sectors are also expected to strengthen.

Around the five presidential elections of the last 20 years, CEO confidence, consumer sentiment, and particularly small business optimism have shifted more favorably in response to Republican victories than Democratic victories, wrote analysts at Goldman Sachs.

To the extent improved sentiment leads to an increase in spending and investment, a Trump victory could boost the earnings outlooks for some firms even without substantial policy changes.

However, analysts also pointed out that in the short term, the emergence of such political violence may deepen concerns about U.S. instability and bring greater volatility.

Political risk is binary and hard to hedge, and uncertainty was high as it is with the close nature of the race, said Priya Misra, a portfolio manager at JPMorgan Investment Management. This adds to volatility. I think it further increases the chance of a Republican sweep.

The attack will boost volatility, said David Mazz, CEO of Roundhill Investments, who believes that after this event, investors may seek temporary safety in defensive stocks such as large-cap companies. Therefore, it also adds support for stocks that do well in a steepening yield curve, especially financials.

In the bond market, Marko Papic, Chief Strategist at BCA Research Inc. in California, warned that in the short term, bond investors should pay more attention because this attack is likely to increase Trump's chances of being elected and ultimately lead to concerns about fiscal prospects.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.