2024-11-12 16:41:00
Tesla explodes on the stock market, as does the stock of the Trump Media group, while Bitcoin breaks one record after another. These are the most visible consequences of a financial phenomenon called “Trump trades”. He has been in the spotlight on Wall Street since the victory of the Republican candidate in the American presidential election on November 5.
THE “Trump trades” bring together all purchases and sales of assets linked closely or a little further to the world of the future 47th president of the United States, whether they are cryptocurrency, social networks or hydrocarbons . This is obvious for Trump Media, the entity which notably oversees Truth Social, X’s Trumpian competitor.
“Maga” stock market?
If Tesla’s stock has gained more than 40% on the stock market in one week, it is essentially because the CEO of the electric car manufacturer is Elon Musk, the multi-billionaire who very openly and financially supported Donald Trump.
Same for Bitcoin. After the election of Donald Trump, the famous cryptocurrency beat its precedent record to stand at 82 000 dollars, essentially because “Donald Trump was the number 1 candidate for investors in cryptocurrencies,” underlines Antoine Andréani, director of research for the stock broker XTB. Concretely, during the electoral campaign, Donald Trump suggested that as president he could “purchase up to 5% of the total supply of Bitcoins to create a strategic reserve of this cryptocurrency”, specifies Daniele D’Alvia, specialist in the banking and financial sectors at Queen Mary University of London.
All these stock market movements represent the emerging part of the “Trump Trades”. “They are the speculative side of this phenomenon,” underlines Antoine Andréani. The rise in Tesla or Trump Media “has little to do with the fundamentals for these companies, which have not changed since the presidential election”, specifies Alexandre Baradez, financial analyst for the stock broker IG France. Since the Republican candidate’s election victory, Tesla hasn’t sold many more cars and Truth Social hasn’t seen a notable influx of new users.
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Other “Trump trades,” however, go beyond fashion. For Antoine Andréani, this is, for example, the case for the price of oil, which persists in remaining relatively low “while the geopolitical risk is very high [en raison notamment des guerres en Ukraine et au Moyen-Orient, NDLR]”Investors have the impression that Donald Trump will really resolve both the crisis in the Middle East and the war in Ukraine, while boosting oil production in the United States,” analyzes Antoine Andréani.
“Trump Trades” also embody the stock market version of the Republican candidate’s “America first”. “There is euphoria on North American assets,” notes Alexandre Baradez. “Domestic stocks, whether large groups or the shares of small American companies, generally benefit from these ‘Trump trades'”, notes the analyst.
In other words, investors are indeed anticipating a policy favoring everything that is “made in America”… To the detriment of the rest of the world. “We see, for example, that there is less interest at the moment for European or Chinese values,” explains Alexandre Baradez. The rate of the dollar against the euro and the yuan has also seen a clear recovery since November 5.
Donald Trump, so reassuring…
The “Trump trades” have resulted in all-out optimism on North American financial markets. Since the electoral victory of the Republican candidate, the main indices for United States – Dow Jones, Nasdaq, S&P 500 – are celebrating.
“It’s essentially because investors hate uncertainty and in their eyes Donald Trump represents the opposite,” underlines Antoine Andréani. The idea that the future president of the United States could appear as the paragon of certainty may surprise political observers who have often qualified Donald Trump “unpredictable”.
Also readWall Street on the rise, bitcoin soaring… Why Trump’s election is electrifying the markets
However, for the markets, Donald Trump is reassuring. “Investors think they can trust him, because he is a businessman who knows the stock market, and also because he gave the impression of having clear ideas and pro-market priorities,” summarizes Daniele D’Alvia.
The priorities of the future 47th president and his record as the 45th tenant of the White House suggest that he will “energize Wall Street in the name of financial innovation and deregulation”, explains Daniele D’Alvia. Donald Trump has, in particular, repeated several times that he would separate from Gary Gensler, the current director of the Securities and Exchange Commission (SEC – Financial Market Control Organization), considered too unaccommodating with the stock market interests of the world business. Donald Trump also suggested that he intended to reduce the room for maneuver of the Central bank to intervene in financial markets. He had also been, during his first mandate between 2016 and 2020, a “great deregulator”. Enough to fill the financial markets with ease…
Reduced room for maneuver
But all this optimism “can also be a little blind, and risky”, believes Alexandre Baradez. Those who have boarded the stock market “Trump express” are “doing everything to ignore the fact that everything will not necessarily go as planned,” notes Drew Pettit, North American markets analyst for Citi Bank, interviewed by the Financial Times.
Thus, these “Trump Trades” “will only continue if Donald Trump really implements his program”, nuance Daniele D’Alvia. Not sure he can do it. Investors actually want to believe it because it happened during the first years of Donald Trump’s previous mandate. “But at the time, inflation was not a problem and the level of deficit left by Barack Obama was much lower,” emphasizes Alexandre Baradez.
This time, Donald Trump will have much less room for maneuver. The high inflation that followed the end of the Covid-19 pandemic has only just been brought under control by the Fed, and if Donald Trump returns to the path of the trade war, the risk of a return to price increases exists. The future president’s favorite weapon – customs duties – means, in fact, more expensive imported products. As for the deficit, it has continued to worsen since 2016, and Donald Trump’s tax cut promises could further increase the budget deficit by 7 500 billion dollars in ten years, underlines the Wall Street Journal. Not sure that the so-called “fiscally responsible” wing of the Republican Party will let Donald Trump undermine the state’s accounts in this way.
The financial markets therefore risk not having everything they want. The disappointment of stock marketers could then match the euphoria aroused by this electoral victory.
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Nflation could re-emerge, complicating his economic agenda.
Investors are still cautiously optimistic, banking on Trump’s promises of deregulation and tax incentives to boost economic growth. However, they are also aware of the potential pitfalls that could arise, given the current economic landscape and global uncertainties.
The overall sentiment hints at a turbulent journey ahead, as the financial markets react to a mix of historical patterns from Trump’s first term and the unprecedented challenges posed by the current economic climate. The interplay between investor confidence and economic realities will ultimately dictate the success of these “Trump Trades.” As the situation develops, stakeholders are advised to keep a close eye on policy announcements and market reactions in their investment strategies.