After the assassination attempt on former US president, Donald Trump, many have started talking about the ‘Trump trade’. Initial market reactions included a slight rise in the US dollar and moderately higher share prices, but these increases were limited. The key question now is, how much has the Trump factor already been priced into the market?
Influence on stock markets
Stock markets typically react more to earnings forecasts and economic fundamentals than political events, and the presidential race between Trump and Joe Biden has had little influence over the stock market so far. The current stock market uptrend is primarily driven by strong corporate earnings, particularly in the S&P 500, which is experiencing its highest earnings growth in years.
Historically, a shift from a Democratic to a Republican president is seen as positive for stocks, but this year a second term for Biden or a return for Trump are both favourable scenarios for the market. Current polls suggest a higher probability of a Trump election victory, especially after the assassination attempt. However, there is still plenty of time before the November election.
Importance of the bond market
There is greater uncertainty in the bond market though. Expectations of a clear Trump victory could bring significant consequences. Trump’s potential fiscal policies might increase government spending and new debt, which could raise interest rates and lower bond prices.
Cryptocurrencies and bitcoin
Bitcoin and other cryptocurrencies are unique in this situation, as they react immediately to global events and can be traded around the clock. After the Trump assassination attempt, bitcoin initially dropped, then rose sharply. However, this volatility is typical for bitcoin and shouldn't be overestimated. The key factor will be how major markets in New York react when they reopen today, as traditional assets like stocks and bonds remain far more relevant.
Political framework
On 5 November, the US will hold the presidential elections as well as elections for the House of Representatives. The US Congress, composed of the House and the Senate, is central to the country's political structure. Since the November 2022 midterm elections, Republicans have held a narrow majority in the House, allowing them to block initiatives from the Biden administration.
Internal tensions within the Republican party, especially between moderates and Trump loyalists, could significantly impact the political landscape. A Trump victory would be more effective if his party retains or expands its House majority, allowing him to better implement his political and economic plans, including expansionary fiscal policies. However, these potential measures could fuel inflation and drive interest rates higher.
Long-term market moves driven by data
Markets are currently in a state of uncertainty, with stocks and bonds being driven by political and economic developments. While a clear election victory by either party might trigger short-term moves, the long-term market focus is likely to remain on fundamental economic data and corporate earnings.