As global financial markets begin to reopen following the assassination attempt on President Donald Trump, one thing is likely to happen: Trump trade will gain even more momentum.
A series of bets based on the expectation that a Republican President Biden returning to the White House would bring about tax cuts, higher tariffs and deregulation had already been gaining momentum since President Joe Biden’s poor performance in last month’s debate put his reelection in jeopardy.
But trade tensions were expected to deepen after Trump’s show of defiant resilience after being shot in the ear onstage at a Pennsylvania rally galvanized his supporters and drew sympathy.
The dollar, which can rise if fiscal easing keeps bond yields high, began to rise against most currencies in early Asian trading, with the Mexican peso leading the decline by down 0.3%. Bitcoin rose above $60,000, which may reflect President Trump’s crypto-friendly stance. Meanwhile, as of 6:05 p.m. New York time, September S&P 500 futures were up 0.1%.
“To us, this news reinforces that Trump is the front-runner,” said Mark McCormick, global head of foreign exchange and emerging markets strategy at Toronto-Dominion Bank. “We remain bullish on the U.S. dollar in late and early 2025.”
The only caveat to all of this is that any outbreak of political violence could deepen concerns about instability in the US and send investors fleeing to safe-haven assets, potentially clouding some of the market positioning already taking place ahead of the election.
While 10-year Treasury note futures contracts for September delivery were down in early Asian trading, Treasuries tend to rise when investors seek temporary safety, which could distort the Trump trade in Treasury markets.The Trump trade hinges on betting that longer-dated government bonds will underperform and the yield curve will steepen on expectations that President Trump’s fiscal and trade policies will stomp up inflationary pressures.
Additionally, some investors may want to lock in profits early or may be wary of getting deeper into already crowded positions.
“Political risks are binary and difficult to hedge, and there was a lot of uncertainty given the close election,” said Priya Misra, a portfolio manager at JPMorgan Investment Management in New York.
“This will add volatility. I think it will make it even more likely that we’ll see a Republican sweep,” she said, adding that it could “put a lot of pressure on the curve.”
Traders generally don’t believe the assassination attempt on Trump will derail the stock market’s trajectory in the long term, but it could lead to more near-term price action. The market is already abuzz with speculation that valuations are too high, given the surge in artificial intelligence stocks and the risks posed by rising interest rates and political instability.
But investors expect stocks in the banking, health care and oil industries to also benefit from a Trump victory.
“This attack will likely lead to increased volatility,” said David Mazza, CEO of Round Hill Investments, who predicted investors may seek temporary safety in defensive stocks such as large-cap stocks. “The steepening yield curve will also provide more support to strong performers, particularly financials.”
The early reactions were reminiscent of those seen after the first presidential debate in late June, when Biden’s weak performance was seen as boosting Trump’s chances of winning.
During the meeting, the dollar rose, and investors quickly gambled by buying short-term Treasury bills and selling long-term Treasury notes — a move known as a steepener trade. The trade has paid off: 30-year Treasury yields were about 37 basis points lower than 2-year notes before the debate, but are now nearly 5 basis points higher.
“If the market perceives a Trump victory as more likely than it was on Friday, we could expect an afternoon sell-off in the bond market similar to what we saw immediately after the debate,” Michael Purves, CEO and founder of Thorbakken Capital Advisors, said in an email.
Purves said bond traders are pricing in at least two rate cuts in 2024, but if Trump’s chances of winning increase significantly, the Fed could be inclined to keep rates on hold for longer.
“Trump’s stated policies are (at least for now) more inflationary than Biden’s,” he wrote, adding that “the Fed will want to accumulate as much dry power as possible.”
