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Trump is starting to move the markets
Donald Trump has had a surprisingly solid summer, increasing the chances, for now, that he will win a second presidential term.
This is why financial markets are waking up again to the “Trump deal,” with varying implications for stocks, bonds, cryptocurrencies, interest rates and inflation.
Trump’s rise began with the June 27 presidential debate, in which President Joe Biden’s bumbling raised more questions than ever about the incumbent’s age and stamina. Since then, a growing chorus of Democrats has called for Biden to step aside and let Vice President Kamala Harris or another younger Democrat take on Trump.
Trump survived an assassination attempt on July 13 and named the first millennial to a national ticket when he chose J.D. Vance as his vice presidential running mate. Trump’s former challengers lined up behind the former president at the Republican convention, an unusual show of unity in an otherwise divided party.
Trump himself appears to be moving toward the center, perhaps in an attempt to win over swing voters and traditional business supporters. In an interview with Bloomberg Businessweek, he tried to assuage fears of chaos on Wall Street in a second term. He said he would likely keep Fed Chairman Jerome Powell in place until the end of his term in 2026, “especially if I thought he was doing the right thing.” That means cutting interest rates, but only during a Trump presidency — not in the fall, when that might help Biden.
Trump has tried to assure investors that there would be no unusual inflation caused by new tariffs without explaining how he would work that magic. He has even suggested that he would consider JPMorgan Chase CEO Jamie Dimon for Treasury secretary, which would put a Wall Street figure in the job if Dimon accepts.
Trump’s Treasury Secretary? Jamie Dimon, CEO of JPMorgan Chase & Co., speaks at the Economic Club of New York. (REUTERS/Mike Segar) (REUTERS / Reuters)
Election scenarios are now pushing earnings and inflation off the radar as investors’ top concerns. “‘Animal spirits’ have been given a new lease of life by this growing sentiment that Donald Trump will emerge victorious,” economist David Rosenberg of Rosenberg Research wrote to clients on July 17. “No wonder investors are foaming at the mouth.”
Betting markets — which may be spurious — now give Trump a 66% chance of winning, according to the RealClearPolitics Average. This suggests increasing chances not just of a Trump victory, but of a Republican victory in which the GOP captures both houses of Congress as well, giving it unified control of the government.
That would open the door to more corporate tax cuts, which Democrats would likely block if they controlled at least one chamber of Congress. Rosenberg sees the GOP sweep as a contributor to the recent rotation of investors out of technology stocks and into smaller companies considered value stocks on the theory that more tax cuts would help smaller stocks reach the so-called Magnificent Seven.
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Cryptocurrencies have been another beneficiary of Trump’s growing fortunes. Trump, once a crypto skeptic, now promises end government efforts to regulate encryption in an attempt to capture younger voters who are passionate about the trend. Bitcoin’s value jumped by $1,000 during the first hour after Trump survived the July 13 shooting, as buyers bet that the failed assassination would boost Trump’s election chances. Over the next four days, bitcoin rose another $4,500. Most other cryptocurrencies followed bitcoin higher.
But the outlook for a second Trump presidency is not entirely rosy.
For example, Trump’s plans to raise import tariffs and expel illegal immigrants from the country are inflationary because they would raise the prices of imported goods and would likely also increase labor costs, making workers in some sectors more scarce.
That could undo the considerable progress of the past two years, with inflation falling sharply from its 2022 peak, raising hopes that the Federal Reserve could start cutting interest rates as early as September. Any sign of resurgent inflation — including possible Trump policies — could interfere with that and keep interest rates elevated. Some analysts think interest rates are already higher than they would otherwise be because Investors are starting to price in the effect of Trump’s inflationary policies.
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Investors are also sniffing out specific industries or companies that could benefit or suffer from a second Trump term. During the Bloomberg interview, for example, Trump suggested he would not help Taiwan if China attacked, even though Taiwan is a key source of the world’s most advanced semiconductors, which are key to the U.S. economy and the artificial intelligence boom. Or, he said, Taiwan should pay the United States for its protection.
Tech stocks promptly sold off, leading to a 2.5% one-day drop in the Nasdaq stock index on July 17. “Some of the pressure on big tech stocks today appears to be linked to [Trump] “Remarks that Taiwan should pay for U.S. defense,” Capital Economics reported on July 17, the day Bloomberg published Trump’s interview. Shares of Taiwanese semiconductor giant TSMC fell 7% on the news.
Although he is having a good track record, Trump is not a sure choice.
Despite all of Biden’s problems, he is less than three points behind Trump in the race. Cook Political Report Poll Average.
And an already unpredictable race could get even messier. Biden could still bow out, with a less familiar Democrat taking his place. Trump is also scheduled to be sentenced on 34 criminal convictions in his New York City fraud trial on Sept. 18, just six weeks before the election. And both candidates are elderly and frail in their own right, raising the odds of a health emergency in the final stretch of the election.
Whatever the markets price today, they may price tomorrow.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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