Investors ride the ‘Trump trade’ as expectations for a second term increase
Former U.S. Donald President Trump selected Sen. J.D. Vance (R-Ohio) as his running mate on Monday, July 15, 2024.
Rising expectations that former U.S. President Donald Trump will win the election in November are supercharging the so-called “Trump trade,” on views of what his policies will deliver to parts of the market.
The current 2024 U.S. presidential election betting odds from Maxim Lott and John Stossel have former President Trump at 66.0% (vs. 15.1% for Biden and 12.0% for Harris, should she replace Biden).
Stock investors are leaning into corners of the U.S. equity market that could benefit from proposed Trump policies such as tax cuts and regulatory easing, including small caps and energy shares. Those preferences – along with expectations that the Federal Reserve will cut interest rates in coming months – are fueling a rotation out of big technology stocks and into less-loved areas of the market…
“The market is saying that the expectation is that there is going to be a second Trump presidency,” said JJ Kinahan, CEO of IG North America and president of online broker tastytrade. “The probabilities are all pointing that way.” Online prediction site PredictIt on Tuesday showed bets of an election win at 69 cents for Trump, compared with 53 cents a month ago. Biden stood at 28 cents, compared with 44 cents in mid-June.
The rising odds have been accompanied by a rally in everything from small caps to shares of crypto companies. Beneficiaries include private prison operator Geo Group, whose shares have risen 33% since the debate in late June. Trump promised to crack down on illegal immigration, which could boost demand for detention centers.
“The Trump trade … revolves around the prospect of faster economic growth that favors domestic companies,” said Brian Jacobsen, chief economist at Annex Wealth Management.
King Lip, chief strategist at BakerAvenue Wealth Management, said his firm has been holding a limited position in small-cap stocks as a hedge for a Trump victory.
Robert Christian, chief investment officer at K2 Advisors, which invests in hedge funds, said many hedge funds have positioned for a Trump win with increased exposure to energy companies and financials, which they believe could benefit from a looser regulatory environment.
Some stocks have suffered as Trump’s perceived chances have grown. Among them have been shares of European carmakers, which could be hard-hit by potential tariffs on foreign imports.
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MacDailyNews Note: The small-cap-focused Russell 2000 index is up 11% since the June 27th 2024 U.S. presidential debate, as expectations that Trump will extend the Tax Cuts and Jobs Act (TCJA) and bets that the Federal Reserve will cut interest rates in September boost the appeal of smaller companies. The S&P 500, made up of 500 of the U.S. largest publicly traded companies and led by Apple, by contrast, is up just 3.4% since the June 27th.
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