The 'Trump Trade' is running on the stock exchanges
For the past few days, the "Trump Trade" has been a topic on the stock exchanges, according to ntv.de. They explain what it's about, who benefits and who loses - and what connection it has to the failed assassination attempt on the Republican presidential candidate.
What does the term "Trump Trade" mean?
Many recent market movements have led stock market participants back to the "Trump Trade." This refers to investors already reacting to the economic policy they expect from Donald Trump if he is re-elected president in November. This can affect individual company stocks or entire industries that may profit or suffer as a result, as well as other investment classes like bonds. There was already such a "Trump Trade" after his surprise victory in 2016. It re-emerged at the end of last month after Joe Biden gave a dismal performance in a televised debate, significantly increasing Trump's chances of winning.
Even though polls still only show a relatively small lead for the Republican, financial markets now seem to be betting on his victory. Moreover, Robert Halver, head of capital market analysis at Baader Bank at ntv, says, "The 'Trump Trade' assumes that 'American Hero' Trump, who miraculously survived the assassination attempt, will not only be re-elected president but also has a good chance of winning both houses of Congress for the Republicans." This means he can push through his economic agenda.
What is Trump's economic agenda?
In a nutshell: lower taxes, even if this would further increase the US budget deficit; fewer regulations, especially in areas like environmental and consumer protection; and higher tariffs. Trump has announced that he intends to further reduce the corporate taxes he already lowered during his first presidency. Consumer protection regulations could be rolled back, particularly in the financial sector.
Furthermore, Trump has announced that he intends to roll back support for renewable energy. Tariffs are threatened mainly for imports from China but also from Europe. In a recent interview with "Bloomberg," Trump hinted that such tariffs were not intended primarily to block trade but to secure concessions from trading partners. "Tariffs are good for negotiations," Trump said.
Who benefits from it?
In general, it is assumed that many smaller corporations, whose business activities are limited to the US market, could benefit from Trump's deregulation and protectionist agenda. The Russell 2000 Index, which lists the stocks of smaller companies, has risen by more than 11% since the disastrous debate for Biden. In contrast, the S&P 500, the leading index of the 500 largest US corporations, has only risen by 3.4%.
Industries that could particularly benefit from Trump's deregulation plans are banking and oil. Representatives of US oil companies suggested to Trump during a meeting in May that they would donate a billion dollars for his campaign if he would eliminate environmental regulations and subsidies for electric mobility.
Part of "Trump Trades" in the Past Few Days Includes Bitcoin and Other Cryptocurrencies.
Under Biden, regulatory attempts have been made to strengthen the market for virtual currencies. A few years ago, Trump had criticized cryptocurrencies, but now he positions himself as a protector of the industry and promises it widespread freedom from burdensome regulation.
Who Loses under Trump?
Clearly, the losers in a new Trump Presidency would be all companies that rely on renewable energy. Trump intends to scrap environmental and climate protection laws to make fossil energy sources more competitive. He has also announced that he intends to consolidate subsidies for climate-friendly technologies from Biden's billion-dollar investment packages. In particular, Trump intends to stop the construction of offshore wind parks.
Foreign companies could also lose out through Trump's announced import tariffs, for example car manufacturers in Germany. However, as capital market expert Halver points out, German industrial conglomerates, from automobile to machine building to chemical companies, produce mainly in the USA and could expand their operations there. "The German location will suffer, but we don't need to worry about that. We have to separate that from the companies we have. They will certainly make more business, more sales, more profits in America," so Halver.
What's Happening on the Bond Market
Estimates suggest that Trump's tax cutting plans could lead to additional government debt of between four and five trillion dollars over a ten-year period. This could fuel inflation and push up prices for government bonds. On the bond market, the "Trump Trade" manifests itself in that some investors are already reducing their positions in long-term bonds. This led to a decline in the yields of bonds that move inversely to bond prices in the last few weeks.
- Despite the failed assassination attempt, the 'Trump Trade' is gaining momentum in the stock markets, with investors anticipating favorable stock prices and industry performances if Donald Trump wins the United States Presidential Election 2024.
- Donald Trump's economic agenda, if re-elected, includes lower taxes, fewer regulations, and higher tariffs, especially on imports from China and Europe. This protectionist agenda could potentially benefit certain US industries and corporations, such as banking and oil, while affecting others negatively, like renewable energy companies and foreign car manufacturers.
- The bond market has also been influenced by the 'Trump Trade', with some investors reducing their positions in long-term bonds due to anticipated government debt from Trump's tax-cutting plans, which could potentially increase inflation and bond prices.
