Election Day Arrives: Market Strategists Weigh In on Potential Impact
As Americans head to the polls to elect their next president, market strategists are bracing for potential market-moving events that could shape the financial landscape for the rest of the year and beyond.
A Contested Election: The Biggest Risk to US Equities
Wall Street strategists agree that a close, contested election is the main tail risk for US equities in the coming days and months. According to RBC Capital Markets’ Lori Calvasina, a Democratic sweep could also catch US equity investors off guard.
The Unwinding of the Trump Trade
Market strategists have been discussing the potential unwinding of the so-called Trump trade should the former president not win. Certain sectors, such as financials and cryptocurrencies, have rallied in recent weeks on the assumption that Trump’s policies would boost their prospects. However, these trades began to reverse when a fresh poll showed Kamala Harris leading Trump in Iowa.
Sector Winners and Losers
Strategists point to other trades that have lagged over the past month and could outperform if Harris wins. Consumer goods companies, which Trump’s tariff policy could hurt, have been pricing in potential negative impacts leading into the election. Morgan Stanley’s Mike Wilson believes that tariff-exposed consumer equities and renewables could outperform in the short term, while financials, industrials, and commodity-sensitive industries could underperform initially.
The Impact of Inflationary Policies
Trump’s policies are viewed as more inflationary than Harris’s, which would likely lead to higher rates. This has been a factor in the 10-year Treasury yield’s roughly 70 basis point move higher over the past six weeks. However, Wilson notes that even if a Trump win drove yields higher, equity markets could continue to take the rate push in stride if it comes alongside continued expectations of stronger economic growth.
Homebuilders: A Sector to Watch
Citi equity strategist Scott Chronert highlights that homebuilders, which have lagged the broader market amid the recent move higher in rates, would likely benefit from a Harris win. Harris’s policies would provide direct support to first-time homebuyers, which would benefit companies in the industry.
Trump Media & Technology Group Stock: A Binary Bet
Trump Media & Technology Group stock (DJT) remains in focus, particularly given it could cost Trump billions should the stock tank after an election loss. The stock has roared over the past month before sliding late last week as the election appeared to be a close call in polling. On Tuesday, shares were up more than 13% in early trading.
A High-Stakes Election
As the election results unfold, market strategists will be closely watching for potential market-moving events that could shape the financial landscape for the rest of the year and beyond. One thing is certain: this election will have far-reaching implications for the markets.
Leave a Reply