As global financial markets reopened following the attempted assassination of Donald Trump, a surge in the so-called “Trump trade” seemed inevitable. Investors, banking on Trump’s potential return to the White House bringing tax cuts, higher tariffs, and looser regulations, were already gaining momentum after President Joe Biden’s weak debate performance last month cast doubts on his re-election prospects.
Trump’s defiant response to being shot in the ear during a Pennsylvania rally is expected to galvanize his supporters and draw sympathy, further driving market reactions.
On Monday, Treasuries fell, with long-dated bonds underperforming due to expectations that Trump’s fiscal and trade policies would spur inflation. The dollar rose against most currencies, Bitcoin surpassed $60,000, and futures on the S&P 500 Index for September increased by 0.2%.
“This news reinforces that Trump is the frontrunner,” said Mark McCormick, global head of foreign-exchange and emerging-market strategy at Toronto Dominion Bank. “We remain US dollar bulls for the second half and early 2025.”
Potential for Volatility Amid Political Uncertainty
With nearly four months remaining in the US election campaign, political violence could heighten concerns about instability, pushing investors toward safe-haven assets and potentially overshadowing current market trends.
Priya Misra, a portfolio manager at JPMorgan Investment Management, noted, “Political risk is binary and hard to hedge, and uncertainty was already high given the close race. This event adds to volatility and increases the likelihood of a Republican sweep, which could steepen the yield curve.”
The gap between US two- and 10-year debt widened by three basis points to minus 24 basis points, the most significant spread since January.
While most traders do not expect the assassination attempt to derail long-term stock-market trends, near-term volatility is anticipated. The market has been dealing with speculation about stretched valuations due to the boom in artificial intelligence stocks and risks from high interest rates and political uncertainty.
Sector-Specific Impacts and Federal Reserve Considerations
Investors expect bank, health-care, and oil-industry stocks to benefit from a Trump victory. David Mazza, CEO at Roundhill Investments, predicted a short-term boost in defensive stocks like mega-cap companies and support for financials benefiting from a steepening yield curve.
The reaction mirrors what was seen after Biden’s lackluster performance in the first presidential debate in late June, which boosted Trump’s election odds.
Although bond traders have been anticipating at least two interest-rate cuts in 2024, a significant increase in Trump’s election odds could influence the Federal Reserve to maintain current rates longer. Michael Purves, CEO of Tallbacken Capital Advisors, noted, “Trump’s policies are more inflationary than Biden’s, and we think the Fed will want to accumulate as much dry powder as possible.”
The financial community will closely watch developments as the US election campaign continues to unfold.
–With contributions from Liz Capo McCormick, Isabelle Lee, Sid Verma, Edward Dufner, Esha Dey, Michael G. Wilson, James Hirai, Aline Oyamada, and Constantine Courcoulas.
