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Introduction
US investors expected a somewhat smooth ride for the 2024 presidential election, with familiar candidates and a predictable tight race. However, the dynamics shifted dramatically after President Joe Biden's poor performance in the first debate and the assassination attempt on Donald Trump on July 13. Now, Trump is gaining momentum, with rising poll numbers, diminishing legal issues, and increased sympathy from the public after being injured in the attempt on his life.
What is the Trump Trade?
The “Trump trade” refers to investment strategies that capitalise on the potential benefits or risks of a Trump presidency. This concept emerged after Trump’s unexpected 2016 victory, which led to a surge in US stocks, Treasury yields, and the dollar, driven by his promises of corporate tax cuts and deregulation. Recent political events have reignited this trading strategy, particularly after Biden’s debate performance and the incident at Trump’s Pennsylvania rally. The currency and bond markets have shown significant reactions.
Key Points of the Trump Trade
Currencies
The dollar reacted quickly to the changing political landscape, gaining strength post-debate. Trump’s proposed policies, such as significant tariffs on Chinese imports and tax cuts, could push inflation higher, potentially leading the Federal Reserve to raise interest rates more aggressively. Additionally, Trump’s running mate, Senator JD Vance, has suggested devaluing the dollar to boost American exports.
US Treasuries
In response to the political developments, money managers have been buying shorter-maturity Treasury notes and selling longer-term ones, a strategy known as a steepener trade. This is a hedge against anticipated higher inflation. Wall Street strategists, including those from Morgan Stanley and Barclays, recommend this approach to prepare for persistent inflation and rising long-term yields under another Trump administration.
Stocks
Trump’s policies are expected to favour certain sectors, including banking, healthcare, prisons, energy, and companies involved in mergers and acquisitions. Health insurers like UnitedHealth Group and Humana could benefit from relaxed regulations. Energy firms and fossil-fuel automakers may see explicit support. Private prison stocks such as GEO Group are rising on expectations of stricter immigration policies. Gun stocks, including Smith & Wesson Brands and Sturm Ruger, are also potential for greater policy changes. A Republican administration might also ease antitrust regulations, benefiting the equity market.
Cryptocurrencies
Trump’s favourable stance on cryptocurrencies contrasts with the Biden administration’s skepticism. Bitcoin experienced sharp gains after the debate and the attempt on Trump’s life. Stocks to watch in this space include Coinbase Global, Marathon Digital Holdings, Riot Platforms, Cleanspark, MicroStrategy, Cipher Mining, and the Bitwise Crypto Industry Innovators ETF.
Potential Losers
Not all markets and sectors stand to gain from a Trump presidency. The Mexican peso and Chinese yuan could weaken due to a stronger dollar and potential tariffs. Electric vehicle and renewable energy companies might suffer from the rollback of green subsidies. Companies with significant revenue from China, like Nvidia, Broadcom, Qualcomm, Air Products and Chemicals, Celanese, and Otis Worldwide, could face challenges if trade tensions escalate. Additionally, Trump has criticized tech giants like Meta Platforms, Alphabet, and Snap, previously and their efforts to police online speech. These companies might also be required to contribute to a universal-service program aimed at expanding communication services across the US, adding financial pressure.
Conclusion
With the November 5 election still a few months away, there's plenty of uncertainty surrounding the true impact of a potential Trump presidency. While some investors see clear opportunities in sectors like banking, healthcare, and energy, others brace for potential challenges in renewable energy and tech. The evolving political landscape requires investors to stay informed and agile, ready to adjust their strategies as new developments unfold.
As always, it's crucial to base investment decisions on thorough analysis and a well-rounded understanding of the market forces at play. Whether you're considering the potential gains in certain stocks or hedging against inflationary pressures in the bond market, staying ahead of the curve will be key. Keep an eye on political events, economic indicators, and expert analyses to navigate these turbulent times successfully.
Disclaimer
The content provided in this article is for informational purposes only and should not be considered as financial advice. The Institute Trader does not endorse or recommend any specific investments, financial strategies, or actions based on the information provided. Always perform your own research and consult with a licensed financial advisor or professional before making any investment decisions. The Institute Trader is not responsible for any losses or damages resulting from the use of this information.