NEW YORK — The heated debate in Washington over whether President Joe Biden will withdraw his re-election bid is spilling over to Wall Street, where traders are shifting money into and out of the dollar, Treasury bonds and other assets that would be affected by the possible return of Donald Trump to the White House.
The recalibration of portfolios began late last week following Biden’s disastrous debate with Trump raised concerns that the 81-year-old Democrat is too old for another term. The subsequent trading action was most acute in the bond market, where 10-year Treasury yields rose 20 basis points in the days that followed.
With speculation mounting rapidly that Biden might drop out of the presidential race, and with market bets at less than 50% that he will remain a candidate, investors are hastily drawing up contingency plans to react to such an announcement over Thursday’s July 4 holiday and the following weekend.
One fund manager, speaking on condition of anonymity, said he was heading into the holiday period with a bias toward the dollar and short-term debt as a hedge once morest the increased risk he calculated would be triggered by a Biden withdrawal. No president has opted not to seek a second term since Lyndon Johnson in 1968 and the presidential election is just four months away.
“Markets have already been repricing election probabilities since the debate, so the news over the past 24 hours has really just added fuel to the fire,” said Gennadiy Goldberg, head of rates strategy at TD Securities in New York.
The consensus among strategists is that a Trump re-election would boost trades that benefit from looser fiscal policy and increased protectionism: a strong dollar, higher bond yields and gains in banking, health care and energy stocks.
The dollar sign
The dollar gave one of the first signals of how markets would adjust to a possible Trump victory, gaining ground in the hours following last week’s debate. While the currency has received a boost this year from guidance from the Federal Reserve that it intends to keep interest rates higher for longer, the currency posted a clear appreciation in real time as Trump dominated the debate with Biden.
“A Trump victory raises the prospect of higher inflation and a stronger dollar, given his promise of more tariffs and a tougher stance on immigration,” said JPMorgan strategists led by Joyce Chang.
Potential losers from a rising dollar and Trump’s expected support for tariffs include the Mexican peso and the yuan.
Stocks rise
The prospect of a Trump victory has supported a number of stocks that stand to benefit from perceptions of his stances on the regulatory environment, mergers and trade relations. The broader market has rallied following the debate.
“The shift in the electoral trend since last week has meant that stocks are on the rise, as Republicans are generally seen as more business-friendly,” said Tom Essaye, president of Sevens Report.
Health insurers UnitedHealth Group Inc. and Humana Inc. and banks would benefit from looser regulation. Discover Financial Services and Capital One Financial Corp. are among credit card companies that have gained on Trump optimism, given the pending deal between them and speculation regarding possible changes to fee rules.
Energy stocks such as Occidental Petroleum Corp. rose following the debate, as the former president is seen as having a pro-oil stance.— Bloomberg
Private prison stocks such as GEO Group Inc. have reacted to his perceived toughness on immigration.
The ETF market has recently shown a clear investment strategy: long bets that Trump will encourage deregulation and a steeper Treasury yield curve thanks to his potentially inflationary agenda.
The $40 billion Financial Select Sector SPDR Fund last week saw its biggest inflow in more than two months, with investors adding regarding $540 million. So far this week, they have added $611 million amid the latest gyrations in the interest rate market.
Meanwhile, a thematic investment strategy designed to capitalize on bets on a possible Trump presidency has struggled to gain traction. An ETF that has the eye-catching MAGA ticker and invests in Republican-friendly stocks has been slow to accumulate assets and hasn’t seen any material inflows this year, data compiled by Bloomberg show.
Crypto markets
Trump has shown support for the crypto industry in recent weeks by meeting with industry executives and promising to ensure all Bitcoin mining is done in the US.
That makes solana, the fifth-largest cryptocurrency with a market cap of around $67 billion, according to CoinMarketCap, a potential beneficiary of Trump’s return to the White House. Asset managers VanEck and 21Shares have filed applications for ETFs that would invest directly in the digital currency.
While many consider approval a long shot, the thinking among some market participants is that a newly re-elected Trump would appoint a more crypto-friendly Securities and Exchange Commission chairman than Gary Gensler. That’s an outcome that would make a solana ETF — and a corresponding rally for the token — more likely.
The prospect of a Democratic ticket shakeup is also likely to boost Bitcoin, according to Stephane Ouellette, CEO of FRNT Financial.
“The crazier the US political system appears to be, the better it is for Bitcoin,” Ouellette says. “The craziness of the US political system is a favorable factor for Bitcoin.”
Wall StreetMixed closing
Wall Street closed yesterday in mixed territory despite the employment data reported in the US.
Indicators
Wall Street closed yesterday’s trading session in mixed territory, with the Dow Jones Industrial Average falling by a slight 0.06% in a shorter than normal session in which investors ignored the weak economic data. At the close of trading on the New York Stock Exchange, the Dow Jones stood at 39,308 points; the selective S&P advanced by 0.51% to 5,537 points, and the technological Nasdaq rose by 0.88% to 18,188 points.
Without much movement
There was little movement on the New York Stock Exchange yesterday, which ended the day earlier than usual and will remain closed today for the Independence Day holiday. Investors are awaiting the minutes of the June meeting of the Federal Open Market Committee, which will be published an hour following the bell rings, as well as the employment report for the same month, which will be released tomorrow.
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2024-07-14 17:30:40
