The “Trump trade” may unravel after President Joe Biden withdrew from the 2024 presidential election and endorsed Vice President Kamala Harris. Market expectations were initially in favor of a Republican victory following Biden’s shaky debate performance and an assassination attempt against former President Donald Trump. The Trump trade involves investments in stocks that could benefit if Trump were to return to the White House, with Wall Street viewing a Trump win as positive due to his proposed tax cuts and deregulation measures. However, some traders anticipate potential negative impacts on green energy stocks due to Trump’s tariff plans, which could lead to higher inflation.
Following Biden’s announcement, Asian markets were mostly lower as they resumed trading, indicating uncertainty in response to the news. Michael Brown of Pepperstone anticipates volatility across asset classes as the election race becomes more open, leading to a potential softening of the U.S. dollar and increased chances of a Democratic victory. Brown expects a short-term decline in stocks but suggests viewing any dips as buying opportunities in the medium term, particularly with expectations of rate cuts from the Federal Reserve and continued economic and earnings growth. U.S. inflation data for the second quarter is also set to be released, impacting market sentiment.
David Roche of Quantum Strategy notes that Harris is likely to be endorsed by the Democratic Party, as replacing her at this stage could create further chaos. Despite this, Roche believes that a Harris nomination may increase the possibility of a Trump win while reducing the chances of Republicans winning both houses of Congress. On the other hand, Charles Myers of Signum Global Policy sees Harris as a strong candidate with significant support from various demographic groups, including women, young people, and Black voters. Myers suggests that Harris could pose a challenge to Trump and potentially overtake him in the polls once she gains momentum at the Democratic National Convention in August.
Myers and Brown agree that the “Trump trade” faces risks in the short term with Harris emerging as a strong contender for the Democratic nomination. Myers emphasizes Harris’s potential to attract diverse supporters and make significant strides in the race despite early market expectations favoring Trump. Myers cautions against assuming a straightforward victory for Trump, especially given the sudden shift in the race due to Biden’s withdrawal. As the nomination process progresses and Harris chooses a running mate, Myers anticipates a surge in her momentum, potentially altering the dynamics of the election and casting doubt on previous market assumptions.
