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Trump’s improved election odds after the debate are already moving markets
Financial markets are slowly beginning to absorb the possibility that what was once a undecided presidential election campaign has taken a remarkable turn. While it may still be a stretch to call the June 27 debate between President Joe Biden and former President Donald Trump a defining moment, the incumbent’s halting and mumbling performance has changed views of where the race is headed. In both polling data and the prediction market, the Republican challenger has become a solid favorite, up mid-single digits in several recent polls, with the specter lingering that Biden won’t even be his party’s nominee in November. That’s left investors in a quandary about how to predict what a Trump presidency would look like from an economic and market perspective. “As Trump’s numbers rose earlier in the day, [last] “People started speculating that a Trump victory would mean a little bit more inflation in the medium to long term, potentially a slower economy, which is why the yield curve has steepened a little bit, which is why long-term bonds have come under a little bit of pressure early in the week,” said Mark Malek, chief investment officer at Siebert AdvisorNXT. “We’ll watch that because there’s no definitive direction yet, but we feel like the market is starting to try to figure these things out,” he added. The stock market’s reaction has been fairly benign so far: the S&P 500 has continued to hit record highs, albeit gradually, and is up about 1.5% since its last close before the debate. .SPX mountain 2024-06-28 S&P 500 performance since the debate However, the bond market has had a bit more reaction. The benchmark 10-year Treasury yield has gradually fallen, and in recent days it has fallen even further below the 2-year note. The phenomenon, known as an inverted yield curve, has beena nearly infallible predictor of recessions, though the current inversion began in July 2022 and there has been no official recession since. The inversion eased immediately after the debate but has intensified somewhat in recent days. Undermining a Second Trump Presidency Another market reaction to a potential Trump victory, as measured by Bank of America chief investment strategist Michael Hartnett: The winners were rate volatility, bets that benefit as the yield curve steepens, banks and technology. The losers were longer-term bonds, homebuilders, renewable energy stocks and emerging-market currencies. Hartnett also noted that the odds of a Trump-led Republican victory in the White House and both houses of Congress have risen to 36%. Reading the tea leaves, however, has been difficult. Trump’s first presidency and some of his campaign rhetoric, however, have led to guesses about what might lie ahead. “The extension of the 2017 tax cuts and former President Trump’s potential deregulatory agenda are starting to be priced into the market,” Ed Mills, a Washington policy analyst at Raymond James, said in a note. “This is particularly supportive of the financials, and there will be an expectation of more M&A approvals in a Trump presidency. The potential for more inflationary policies should also be closely monitored.” ‘Reverse Goldilocks’ Reaction Inflation has been a major issue for Biden, with the consumer price index rising more than 19% on his watch, compared with less than 8% during Trump’s term. But it was the president’s faltering debate performance that brought the knives out, with some congressional Democrats and mainstream media outlets like The New York Times calling for him to step aside. PredictIt, a widely watched but thinly traded prediction market, put Trump’s odds of winning at around 59% as of Monday afternoon. However, in a twist, Biden’s defiant statements that he would stay in the race caused a wobble on the betting site, giving him a 29% chance of winning compared to 15% for Vice President Kamala Harris. There has been a lot of speculation in recent days that Harris could replace Biden on the ballot, and she had surpassed her odds of being the nominee before that changed on Monday. PredictIt, however, now gives Biden a 56% chance of being the Democratic nominee, with Harris down 12 points to just 31%. Chris Krueger, Washington strategist for TD Cowen, called this week “Biden’s Gauntlet” because it will be crucial to his viability as a candidate. “Biden remains the presumptive nominee… [the] “For now,” Krueger wrote, adding that Biden’s Friday interview with ABC’s George Stephanopoulos was “a bit like a reverse Goldilocks: good enough to stay in the race, but not good enough to ease concerns about acuity.” — CNBC’s Sarah Min contributed to this article. Correction: Mark Malek is chief investment officer at Siebert AdvisorNXT. An earlier version misstated the name of the firm.