Are Markets Rethinking the ‘Trump Trade’?

Estimated reading time: 3 minutes

President Joe Biden officially withdrew from the presidential race over the weekend, leaving analysts to reevaluate how the stock market could react to a Democratic or Republican win in November.

What Is the Trump Trade?

The market began pricing in a higher chance of Donald Trump reclaiming the White House after the first debate, as well as the unsuccessful assassination attempt on the former president. The thesis went that a Trump administration would be pro-business and in favor of tax cuts, leaving certain sectors to potentially benefit more than others.

And that doesn’t just mean Truth Social-owner Trump Media (DJT). Potential beneficiaries could include oil and gas companies like ExxonMobil (XOM) and Chevron (CVX), which could face fewer regulatory hurdles under a Republican White House. The inclination toward less regulation might also be favorable for mergers and acquisitions across industries.

But market watchers are more divided on the potential impact of a Trump presidency on the U.S. dollar and bond markets. Trump has said he would bring down lower interest rates, which he can’t do directly or without the help of the Federal Reserve. However, lower rates would typically bring down the dollar’s value and Treasury yields. Devaluation of the dollar could also boost exports.

However, lower taxes might drive the government to issue more debt to make up for the lack of tax revenue, which could boost yields.

Election Expectations

On the flip side, some consider a potential second Trump presidency less favorable to the electric vehicle and renewable energy sectors, and expected trade tariffs could hurt companies that rely on foreign parts and goods.

With the presidential election re-set by Biden’s exit, investors could reassess their “Trump trade” positions and unwind them if they believe there is another likely winner. If so, affected sectors and assets could potentially see more volatility in the lead up to the election.

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