The “Trump Trade” is spreading in global financial markets following the assassination of former U.S. President Donald Trump. Assets associated with Trump are showing strength. As the possibility of Trump winning the November presidential election and returning to the White House on January 20th of next year increases, investors are taking preemptive action. The “Trump Trade” is a bet on Trump’s policies. If he takes office, the fiscal deficit will worsen due to large-scale tax cuts and economic stimulus measures, and inflation is expected. This will likely lead to a decrease in U.S. Treasury bond prices (an increase in Treasury bond yields) and an increase in stock prices. Virtual assets favored by Trump are also likely to rise.
◇Trump-related stocks rise across the board
On the 15th, the first day of trading following Trump’s shooting, the Dow Jones Industrial Average and S&P 500 index hit record highs on the New York Stock Exchange. Notably, the stock price of Trump Media & Technology Group, the parent company of TruthSocial, in which Trump is a major shareholder, rose 31.4%. Gun manufacturer Smith & Wesson (11.4%) and private prison management company CoreCivic (8%), expected to benefit from Trump’s strong anti-immigrant policy, also saw increases. While other electric vehicle stocks declined due to Trump’s distancing from eco-friendly industries such as electric vehicles, Tesla, whose CEO Elon Musk publicly declared his support for Trump right following the shooting, rose. In response to Trump’s declaration that he would become a “crypto president,” the price of Bitcoin rose by regarding 10% following the shooting, and the stock prices of coin exchanges also jumped. The U.S. media called it “Trump pricing,” reflecting the possibility of Trump’s victory in the price.
Graphics = Kim Ha-kyung
The U.S. Treasury yield, considered a barometer of the upcoming U.S. presidential election, is also responding. The U.S. 10-year Treasury yield, which was 4.18% before Trump’s attack, is currently trading at around 4.2%. This same phenomenon occurred following the U.S. presidential candidate TV debate on the 27th of last month. At that time, the U.S. 10-year Treasury yield approached 4.5% due to Trump’s lead. Since the U.S. 10-year Treasury yield directly affects the bank bond yield, which is the standard for housing loans in Korea, this is not welcome news for borrowers.
◇Dollar strength continues
Many predict that the strong dollar will continue if Trump is elected. This is because Trump’s protectionist policies might create a shortage of dollars in the market, and global companies may need to increase their demand for dollars to invest in the U.S. mainland, where borders are being closed more. When Trump won the 2016 presidential election, the dollar rose by regarding 5%, and when he lost the 2020 presidential election, it fell by regarding 5%. Since Trump’s recent attack, the dollar index, which measures the dollar’s value once morest six major currencies, has been on the rise.
Trump’s tariff policy is also a factor in the dollar’s strength. Trump’s second term is said to impose a 10% tariff on all imported goods and a 60% tariff on Chinese goods. This might trigger inflation, as the Peterson Institute for International Economics predicts that the average American family will have to pay $1,700 more per year due to higher import prices. If the Federal Reserve (Fed) keeps interest rates high to counter inflation, the dollar will inevitably strengthen.
◇The timing of the US interest rate cut is also key
However, the possibility of the Fed’s base rate cut is different from the direction of the ‘Trump trade’ of rising government bond yields and a strong dollar. In his speech on the 15th, Federal Reserve Chairman Jerome Powell said, “The favorable economic indicators of the last quarter have given us greater confidence that inflation is slowing down to the 2% target level.” Although he did not give a hint regarding the timing of the rate cut, it is evaluated that we are one step closer to a base rate cut. A base rate cut before the election is favorable news for the current president, Biden, not Trump.
However, if Trump takes office, things are likely to change. Barry Aichengreen, an economics professor at UC Berkeley, recently pointed out in a contribution to the Financial Times that “former President Trump, a self-proclaimed low-interest rate advocate, might pressure the Fed to lower interest rates if he takes office once more.” Trump has already declared that he will not reappoint Chairman Powell when his term ends in May 2026.
☞Trump trade
It is an investment in stocks that benefit from the economic stimulus measures of former U.S. President Donald Trump. Trade means ‘transaction’, such as the ‘yen carry trade’, which involves borrowing Japanese yen at low interest rates and investing in high-interest national assets. The Trump trade refers to the tendency to bet on the strong dollar, rising U.S. long-term Treasury yields, and energy and financial stocks that benefit from deregulation.
The ‘Trump Trade’ Returns: Financial Markets React to Trump’s Re-Entry
The assassination of former US President Donald Trump has sent shockwaves through financial markets, spawning a resurgence of the “Trump Trade.” This phenomenon refers to the impact of Trump’s policies and potential return to power on investment strategies. As the possibility of Trump winning the upcoming November election increases, investors are taking preemptive measures. Let’s delve into the key elements of the ‘Trump Trade’ and its implications on various financial assets.
Trump-Related Stocks Gain Ground
The first trading day following Trump’s assassination saw the Dow Jones Industrial Average and the S&P 500 index hitting record highs on the New York Stock Exchange. This upward trend highlights the potential benefits perceived from a potential Trump presidency.
Several Trump-related stocks experienced significant gains:
- Trump Media & Technology Group: The parent company of TruthSocial, in which Trump holds a major stake, surged 31.4%. This surge reflects investor confidence in Trump’s social media platform and its potential growth under a Trump administration.
- Smith & Wesson: The gun manufacturer saw a 11.4% increase, driven by expectations of a resurgence in gun sales under Trump’s leadership due to his staunch support for the Second Amendment and his anti-crime stance.
- CoreCivic: This private prison management company experienced an 8% rise, as Trump’s policies favoring increased incarceration are seen as beneficial to their business model.
- Tesla: While other electric vehicle stocks declined due to Trump’s skepticism toward eco-friendly industries, Tesla, whose CEO Elon Musk publicly expressed support for Trump, saw an increase. This indicates that Trump’s return might potentially revitalize the fossil fuel industry, boosting Tesla’s position as a competitor.
Cryptocurrencies Benefit from Trump’s Favors
Trump’s previous pronouncements on cryptocurrencies as a future component of the U.S. financial system have generated optimism among investors. The price of Bitcoin surged by 10% following the assassination, coupled with gains in the stock prices of cryptocurrency exchanges. This trend signifies an expectation that Trump may prioritize the development of crypto-related regulations in a second term, potentially fueling further growth within the cryptocurrency market.
U.S. Treasury Yields Reflect Trump’s Impact
The U.S. 10-year Treasury yield, considered a gauge of the upcoming presidential election’s outcome, has also been impacted by Trump’s re-entry into the political scene. Currently, the yield hovers around 4.2%, an increase from 4.18% before the assassination. This rise reflects the expectation of increased government spending and a potential surge in inflation through Trump’s proposed economic stimulus measures. The correlation between the U.S. 10-year Treasury yield and the bank bond yield, which serves as the benchmark for housing loans in Korea, raises concerns for borrowers, as any increase in the yield might lead to higher borrowing costs.
Similar reactions were observed in the U.S. 10-year Treasury yield following the last presidential candidate TV debate, where Trump’s lead resulted in a yield approaching 4.5%. This highlights the potential impact of a Trump victory on interest rates.
The Dollar Strengthens on Trump’s Protectionist Policies
The strength of the dollar is anticipated to continue under a Trump presidency. His protectionist policies might result in a dollar shortage, forcing global companies to increase their demand for dollars for U.S. investments. This dynamic, similar to the scenario following Trump’s victory in the 2016 election, led to a 5% increase in the dollar. Following Trump’s loss in 2020, the dollar experienced a 5% decline.
The dollar index, measuring its value once morest six major currencies, has been on the rise since the assassination, suggesting investor confidence in a stronger dollar under Trump’s leadership.
Trump’s tariff policies also contribute to a strengthening dollar. His second term is predicted to involve a 10% tariff on all import goods and a 60% tariff on Chinese goods. This might trigger inflation, as the Peterson Institute for International Economics estimates that an average American family will face an extra $1,700 annually due to higher import prices.
To counter inflation, the Federal Reserve (Fed) might need to maintain high interest rates, further strengthening the dollar. These inflationary pressures might fuel demand for US dollars as a safe haven asset, further supporting the greenback’s appreciation.
The Timing of the US Interest Rate Cut Remains Uncertain
While the ‘Trump Trade’ suggests rising government bond yields and a strong dollar, a possible Fed base rate cut presents a contrasting view. In his recent statement, Federal Reserve Chairman Jerome Powell indicated that favorable economic indicators suggest confidence in inflation slowing down to the 2% target level, fostering optimism regarding a potential rate cut. Although no specific timing for a rate cut was mentioned, it appears more likely, potentially benefiting incumbent President Biden, rather than Trump, ahead of the election. However, the situation might shift dramatically if Trump assumes office.
Barry Aichengreen, an economics professor at UC Berkeley, suggested in a Financial Times contribution that Trump’s advocacy for low-interest rates might pressure the Fed to reduce interest rates in a second term. He has already declared that he would not reappoint Chairman Powell when his term ends in May 2026, leaving room for a potential change in the Fed’s direction under Trump.
Understanding the ‘Trump Trade’
In essence, the ‘Trump Trade’ is a strategy of investing in assets that are likely to benefit from the economic policies of former US President Donald Trump. These policies typically involve fiscal stimulus, deregulation, and trade protectionism, impacting various market sectors.
| Key Elements | Potential Impact |
|---|---|
| Economic Stimulus | Increased government spending, potentially leading to higher inflation and higher interest rates. |
| Deregulation | Reduced barriers to business activity, potentially boosting corporate profits and economic growth. |
| Trade Protectionism | Imposition of tariffs and other trade barriers, impacting import prices, potentially leading to inflation and impacting the US currency. |
As we approach the November election, the financial markets are closely watching the political landscape and its impact on investment strategies. The ‘Trump Trade’ is a reminder of the substantial influence of political events and the potential ramifications on global financial markets.
