European stock markets were in the red early on Tuesday despite more positive signals from the US, with London, Frankfurt and Paris all down between one-third and one-half a percent. The Dow rallied to a fresh all-time high in the wake of the Trump shooting.
Fed Chair Jay Powell leant into a September rate cut. Front-end yields slid, with the 2-year Treasury yield sinking to its lowest since February. Bitcoin came back down off a one-month high, gold rallied to a two-month peak very close to the all-time high, and crude fell to its weakest in a month. The Dow Jones rose half a percent to a new record.
Apple stock led the way as Morgan Stanley named the company its top pick, sending the shares to a record high. Goldman Sachs also rose after posting a doubling in profit. The S&P 500 index notched a fresh intraday high, closing a little ways off that, up 0.28% for the session.
Investors did not seem bothered by a perception of greater uncertainty in a broad sense (assassinations can be hinge points for history) as the result of the November US election now seems more certain.
So, we can feel more uncertainty now, even if the probability of the outcome is higher. Trump kicked off the Republican National Convention (RNC) in Milwaukee by announcing Ohio’s JD Vance as his running mate.
Markets are starting to really discount a Trump win, factoring in a bit more inflation and some stock-specific positioning.
Higher bond yields, bear steepening, more inflation, more debt, bullish defence and oil & gas stocks — those are the kind of things we are hearing about markets if Donald Trump wins the presidential race this November.
After the first debate went so badly for Joe Biden, and Trump later survived an attempted assassination, the odds on the former president winning for a second time have shortened a lot.
First of all, debt. We have to consider the fiscal outlook and, by most accounts, a Trump White House should mean more debt, which in turn would lead to higher bond yields and a steeper yield curve. Whilst there is less room for a repeat of his first-term fiscal expansion and tax cuts, which sent equities roaring higher, I think this remains the direction of travel for Trump 2.0. And other policies, such as tariffs, will be important. For instance, these could spark a rebound in US inflation, which could push the Fed to raise rates.
We have seen some bear steepening – the view is that Trump back in the White House is going to pile on more debt, cut taxes and drive growth, which should be positive for stocks and negative for bonds. Markets seem to be, tentatively at least, positioning for a more inflationary environment than we have now. Which might explain why the Fed is playing for time.
A Trump presidency would also mean higher tariffs and more trade disruption. He has called for blanket tariffs of 60 percent against Chinese goods, 10 percent against products from the rest of the world. These are in addition to existing tariffs he and Biden have imposed, including the 100 percent tariff on Chinese-made electric vehicles (EVs). Trump has even suggested he could replace the Federal income tax by using tariffs.
More protectionism risks further fragmentation of commodity markets, disruption to supply and higher prices generally. This would further stoke inflationary pressures. Within this we could see some volatility in Natural Gas prices due to the twin risk of a) US LNG exports hitting the market and b) any easing in Russian sanctions that allow Russian gas back on the market.
Key trader macro themes – inflation, rates and the US dollar – would all likely go higher. This would have a big impact on lots of correlated assets – e.g. it could be very negative for a large swathe of emerging market currencies. The Mexican peso notably plunged yesterday.
Those likely to face headwinds from tariffs include Five Below (FIVE), Best Buy Co (BBY), Yeti Holdings (YETI), Nike (NKE), Starbucks (SBUX) and Apple (AAPL).
Defence stocks such as Lockheed Martin (LMT), are seen by many as winners from a Trump focus on military spending. One caveat to this thesis would be a potential peace deal in Ukraine, though the likes of Thales (THLLY) and other European defence manufacturers could benefit from Trump pushing EU nations to spend more on defence.
Energy stocks could move, too. We know Trump is likely to be friendly to big oil and gas, potentially easing regulations and greenlighting LNG exports. This could benefit, for instance, New Fortress Energy (NFE), Cheniere Energy (LNG), Valero (VLO), among others. Downside risks may rise for European majors like Total (TTE) and Shell (SHEL).
Less obvious candidates may include Western Union (WU) — if Trump removes illegal aliens it would lower remittances abroad; or private prison group Geo (GEO), on the basis of more people in detention facilities.
A Trump win could also result in Lina Khan leaving the FTC, which could spur more M&A activity and boost boutique advisory firms like Moelis (MC), PJT Partners (PJT), Evercore (EVR), and Houlihan Lokey (HLI). It could also impact Kroger (KR), which is trying to buy Albertsons (ACI), or Capital One (COF) and its bid for Discovery (DFS).
Among social media companies, Trump Media & Technology Group (DJT) is one to watch for obvious reasons – yesterday it flew. But elsewhere check how Trump treats Section 230, which protects sites like Meta and X from liability for the content posted by users. Any change could hurt the likes of Meta (META), Reddit (RDDT), or Snapchat (SNAP).
Healthcare stocks such as UnitedHealth Group (UNH) and Humana also rallied on Monday as Trump’s odds of winning another four-year term jumped in the wake of the assassination attempt.
On June 28, a day after incumbent President Biden froze up during the first debate, RBC Capital said the Medicare Advantage regulations could ease under Trump, noting that “a second Trump term would ease regulatory and reimbursement headwinds weighing on the managed care stocks”.
Analysts also expect relaxation of Department of Justice scrutiny on the vertical integration between UNH's UnitedHealthcare managed-care division and its Optum health services arm. However, hospital operator HCA Healthcare (HCA) has been flagged as one that could suffer.
Finally, bitcoin has jumped a lot since the weekend with Trump seen broadly as more “crypto-friendly”. Bitcoin could also be a beneficiary if we get more macro uncertainty, trade policy upheaval, rates volatility, and other factors.
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