Is the stock market worried about Trump's victory?
The stock market appears not to be too affected by whether Donald Trump or Kamala Harris wins the November presidential election. However, the bond and Bitcoin markets could react differently. This is the conclusion of analysts at Quant Insight, who have examined the relationship between various asset classes, sectors and stocks to see how they have responded to changes in electoral expectations.
Long-term bond yields have risen lately, despite the Federal Reserve's significant rate cut in September. One reason could be the strength of economic data. However, fixed income investors could also be starting to bet on a second term for Donald Trump, which could be bad news for bonds, but an additional boost for Bitcoin, which has been booming recently.
Impact on bonds and Bitcoin
According to analysts at Quant Insight, “the bond market is where lingering inflation fears and US election risks are playing out.” In other words, stocks are responding positively to the possible continuation of Trump's fiscal policies. However, the bond market is more concerned about inflation and fiscal deficits. Quant Insight predicts that the 10-year Treasury yield would rise further if Trump wins the election.
The hardest hit sectors, in addition to bonds, would be those that serve as proxies for bonds, such as high-dividend-yielding real estate and utility stocks. These sectors could face difficulties if Trump defeats Kamala Harris. “These sectors are sensitive to long-term rates,” Quant Insight analysts wrote.
Bitcoin, on the other hand, has enjoyed a significant rally in recent months, rising from just under $53,000 in early September to around $67,000. Trump has changed his stance on Bitcoin since his first term, going from a critic to an advocate of cryptocurrencies. The Republican Party even included in its platform this summer defending the right to mine Bitcoin and ensuring that every American can safeguard their digital assets.
What sectors could benefit from a Trump victory?
Quant Insight analysts identified several potential winners and losers in their report. In addition to bonds, sectors that serve as proxies for bonds, such as real estate and utility stocks, could suffer from a Trump victory. Still, some tech sectors could surprise by being beneficiaries of a second Trump term.
Quant Insight's analysis looked at how markets performed after Trump's victory over Hillary Clinton in 2016 and again after his loss to Joe Biden in 2020. Although some energy stocks such as Diamondback Energy and Devon Energy made the list of possible winners, what is surprising is the presence of technology giants such as Alphabet, Microsoft and semiconductor companies such as Qualcomm and NXP Semiconductors. Even Tesla was on the list, which could explain Elon Musk's open support for Trump.
