(Bloomberg) -- US investors weren’t expecting much turbulence from the 2024 presidential election. Voters were familiar with both repeat nominees, who seemed poised for a tight race till the end. But that changed quickly after the disastrous showing by President Joe Biden at the first presidential debate in June and then the assassination attempt against Donald Trump on July 13.
Now, Trump has momentum on his side as he prepares to accept, for a third time, the Republican Party’s nomination for president: His poll numbers are up, his legal troubles are melting away, and his injury from a would-be assassin’s bullet has provoked sympathy from Americans across the political spectrum. His market odds of victory in November have never been higher.
All of this has brought back the “Trump trade,” with investors placing bets on stocks, bonds, currencies and other assets that might benefit, or lose out, from a second Trump presidency. The consensus among traders and strategists is that a reelection of Trump, 78, would spur trades that benefit from an inflationary mix of looser regulations and greater protectionism: A strong dollar, higher US bond yields and gains in bank, health and energy stocks.
Here’s a look at the finer points of the Trump trade.
What’s the Trump trade again?
It’s any investment or divestment that seeks to capitalize on a likely Trump win. The first Trump trade was visible just after his surprise victory in the 2016 election, with a simultaneous surge in US stocks, Treasury yields and the dollar that reflected Trump’s promises to cut corporate taxes and ease regulations.
This time, the recalibration of portfolios started in earnest after Biden’s disastrous debate performance heightened concerns that the 81-year-old Democrat was too old to serve another term, and again after Trump survived the assassination attempt at a Pennsylvania campaign rally. The trading action has been most acute in the currency and bond markets.
What are some examples?
Currencies: The dollar gave one of the earliest signals of how markets would adjust to a potential Trump victory, gaining in the hours after the presidential debate. Trump has floated cutting taxes and slapping 60% tariffs on imports from China and 10% duties from the rest of the world. Goldman Sachs Group Inc.’s chief economist, Jan Hatzius, said recently that such levies could push up inflation and force the Federal Reserve to increase rates about five more times than otherwise. Meanwhile, Trump’s running mate, Senator JD Vance of Ohio, has expressed an openness to devaluing the dollar so that American exports become cheaper and find more buyers.
US Treasuries: In the aftermath of the debate, money managers in the $27 trillion Treasuries market reacted by buying shorter-maturity notes and selling longer-term ones — a hedge against higher inflation known as a steepener trade. A slew of Wall Street strategists including Morgan Stanley and Barclays Plc have promoted the strategy, urging clients to prepare for sticky inflation and higher long-maturity yields in another Trump term. In a two-day span in early July, 10-year yields rose by about 13 basis points relative to 2-year rates, in the sharpest curve steepening since October. For the trade to really take hold, the Fed will need to cut the target interest rate, setting the stage for a sustained slide in the shorter end of the yield curve.
Stocks: Trump’s policies are seen as positive for shares of banks, health care companies, prison operators and energy firms, as well as corporations seeking mergers. Health insurers UnitedHealth Group Inc. and Humana Inc. stand to benefit from looser regulations. The Trump platform offers explicit support for oil companies and fossil-fuel automakers. Private prison stocks like GEO Group Inc. have climbed on his tough stance on immigration that some think could lead to more detentions. Gun stocks such as Smith & Wesson Brands and Sturm Ruger & Co. are also potential beneficiaries. Regulatory approvals for mergers and acquisitions might ease under a Republican government after a stricter antitrust regime under Biden, experts say, another boost for equity sentiment.
Cryptocurrencies: Trump has cast himself as friendly to crypto in a bid to court undecided voters, a sharp contrast with Biden administration regulators who remain skeptical of digital assets. Bitcoin rose sharply after the presidential debate and again after the attempt on Trump’s life. Crypto-related stocks to watch include Coinbase Global Inc., Marathon Digital Holdings Inc., Riot Platforms Inc., Cleanspark Inc., MicroStrategy Inc. and Cipher Mining Inc., as well as the Bitwise Crypto Industry Innovators ETF.
Who are the potential losers?
The Mexican peso and Chinese yuan could get punished in the face of a rising dollar and potential Trump tariffs. In equities, potential losers include makers of electric vehicles and renewable energy products, because of Trump’s promise to roll back Biden’s green subsidies. Companies with high revenue exposure to China could face disruption if trade tensions escalate with a Trump win. They include chipmakers such as Nvidia Corp., Broadcom Inc, Qualcomm Inc., materials companies such as Air Products and Chemicals Inc. and Celanese Corp. and industrials such as Otis Worldwide Corp. Trump has also lashed out at tech giants such as Meta Platforms Inc., Google-parent Alphabet Inc. and Snap Inc., vowing to crack down on their platforms because of their efforts to police online speech. Also, a Trump win may mean that the big technology companies will be tapped to contribute to an $8 billion program that aims to expand the access of communication services to all Americans, especially those in rural areas, schools and hospitals. This so-called universal-service program has faced troubles with its funding, and Republican lawmakers have called for companies such as Alphabet, Meta and other big-tech firms to fund the scheme.
Of course, there’s still plenty of room for surprises in the time remaining before the Nov. 5 election. Market pundits note that the true impact of a Trump presidency is murky as his proposed policies are yet to be fully clear.
--With assistance from Sydney Maki.
©2024 Bloomberg L.P.
