Why shots on Trump are cooling the markets
During politics and society's reaction of horror to the failed attack on Donald Trump, there are barely noticeable fluctuations at the stock exchanges. Markets expert David Wehner, fund manager at Do Investment, explains in an interview with ntv.de what this means and what economic consequences a Republican victory would have.
ntv.de: As a layman, one could expect the markets to react strongly to the failed Trump assassination attempt - they don't. Why?
David Wehner: "Political markets have short legs" is a market phrase. There are only very few historical periods where politics has overshadowed the markets for a long time. Markets focus very short-term on political events. We have recently experienced this with the European elections, where France and Italy also came under pressure at the markets - but only for a short time. If election outcomes do not establish themselves as drastically as expected, markets recover very quickly.
Why is that so?
Because worst-case scenarios and associated panic before elections do not materialize in real economic terms. On the one hand, there is usually no clear or absolute majority of extreme right or left candidates. On the other hand, candidates have to make real politics in the end, as we are currently seeing with Meloni in Italy. The markets also dealt only briefly with the Brexit. Approximately one month dominated the capital markets. However, it then became clear that the process would take years and that there would eventually be bilateral negotiations. An exception to this rule is China, where the markets were long-term distrusted: due to protectionism, harsh isolation during the Corona pandemic, and the resulting economic downturn, the regulation of Chinese tech giants, and now overinvestment in the real estate sector.
How does it look in the case of the attempted assassination of Trump?
What we experienced yesterday was certainly politically catastrophic and a grave shock for many. However, the markets were likely calmed by the fact that Donald Trump was only lightly wounded. Had he been seriously or even mortally wounded, there could have been riots, which the markets might have perceived as very strong domestic political uncertainty, leading to falling prices. "Safe havens" like gold, silver, and US Treasury bonds could have gained in this scenario.
Despite the assassination attempt on Trump, the danger of a violence spiral is growing, why are investors reacting so calmly?
They may have already realized that Trump is far ahead in the polls, as he has been since Biden's disastrous TV debate performance. This historic photo of Trump raising his fist in the air with a gunshot wound only boosted the poll numbers again. But for the markets, it is no new situation, the distance to the Democrats has only increased.
Many investors are now assuming that Trump will run again.
From the current perspective, he seems unbeatable. But we still have a few months until the election. Trump could only implement his politics with a clear majority in the Senate or House of Representatives, at least in domestic policy. Since such a clear majority is not yet visible, the markets are relatively calm regarding the US election.
Are the markets right to be calm?
It's a little surprising. If he gets a majority in Congress, it will lead to geopolitical uncertainties. He plans protectionism with high tariffs, tariffs against Asia, particularly China, but also Europe. We can see this today on European stock exchanges. They are not reacting strongly, but negatively. US stock exchanges started the day positively, European ones slightly negatively. This applies to the DAX and the French CAC 40 as well as to the Euro. While returns in the US are rising slightly, they are falling slightly in Europe.
Why, what economic consequences would a second term of Donald Trump bring?
Protectionism would lead to an increase in inflation in the US. Through tariffs, imports from Europe and Asia will become more expensive, and these price increases will be passed on to consumers. In Europe, this would result in a recession, as demand for European products would decrease. American companies would buy from countries with more favorable tariffs or from US suppliers, or even relocate production to the US.
Will this keep investors permanently cold?
Due to the euphoria of yesterday, the markets are still in a strength phase. However, it would not surprise me if one or the other investor reconsidered the situation and reassessed the consequences of a Trump re-election. We could therefore see corrective movements on US stock exchanges in the coming weeks.
What economic risks would a Trump election win pose for the USA?
Through protectionism and tariffs, inflation would, as mentioned, rise. The US state is currently heavily in debt, and interest rates are already high enough to burden the state. Further interest rate hikes against inflation would be difficult, as rising interest rates could slow down economic activity and be an additional burden for the state, companies, and consumers. On the other hand, a high, continually rising inflation would further limit US consumers in their consumption, which is an important part of the US economy. This would also have economic consequences. A complex situation. I don't share the market's euphoria but see risks as well.
But the US economy did well after Trump's first election in 2016.
Yes, beforehand a scary scenario had been built up, but the election fell into a pro-business phase. The US economy was coming out of a weak phase, interest rates and inflation were low. Through a very expansionary fiscal policy and investment policy, he boosted the economy. We had a global economic upturn, which benefited global stock markets in 2017 as well.
Do the markets like Trump because of this?
Fund managers try to establish historical connections. In 2015, China's economy grew relatively weakly, and then came the decision for Brexit in 2016. The mood was relatively bad, with markets in a volatile sideways trend. Then came Trump with his deregulation policy. There was indeed protectionism, such as the trade dispute with China, but there was also a business-friendly policy with investments. The national debt rose, the global economy recovered. This had several causes, including China devaluing its currency and implementing a business-friendly policy. However, the economic upturn occurred exactly during the time when Trump was sworn in as President. Markets anticipate this almost for a second term of Trump and speculate on a repetition.
However, the starting situation is completely different today.
Yes, such predictions are very difficult to make, as the economic situation was quite different from what it is today. Today, countries are heavily indebted, interest rates are high, and inflation is still an issue. Wages have risen, but the middle class is still under pressure due to high living expenses. Therefore, the historical comparison was too lightly grasped. Above all, it is still unclear how the US Congress will come together. Capital markets could very well fall into a weakness phase. However, markets tend to be short-term optimistic.
So, would Biden be better for the economy as a President?
For the European economy, a democratic candidate would be the better choice. We will experience a certain protectionism, especially against China. This will also affect European products as long as there is no trade agreement. But not as strongly as with a second term of Trump. For the global economy, for example through G7 or G20 decisions, a democratic candidate would probably be the better choice.
What would be the consequences of Trump's "America first" for the global economy?
Globalization was one of the decisive drivers of the last 30, 40 years for our prosperity. World trade led to cheaper products, for companies and consumers. Over decades, location and production advantages have contributed to economic returns and thus also to asset and stock market values. Protectionism will at least partially reverse these prosperity advantages. The USA have profited strongly from globalization in the last decades and have generated location advantages, especially in the technology sector. The biggest profit came from the import of skilled labor. Through their dominant position in areas like technology, the USA could also mitigate the disadvantages of deglobalization better than other regions in the world. In addition, they are self-sufficient in essential basic products like energy and food.
Can the outcome of the election be influenced by the assumptions of investors?
No. If the markets were still under pressure before the election, this could be an additional burden for the Democrats. In the USA, many things like retirement are privatized, and many more people there own stocks than here. If the markets rise, investors are more likely to vote for the current President or another Democrat. If the markets are under pressure now, this could negatively affect the Democrats, as most investors do not conduct in-depth analysis.
Why do investors generally favor Republicans?
Investors generally favor Republicans because of their business-friendly policies, such as lower taxes and deregulation. These policies are seen as beneficial for corporate profits and, by extension, for stock market performance. Additionally, Republicans are often perceived as being more pro-business and less likely to implement policies that could negatively impact corporate profits, such as higher taxes or increased regulations. This perception can make the stock market more likely to perform well under a Republican administration.
They stand for deregulation, strengthening the economy, expansionary fiscal policy, and are fond of a low-interest-rate policy. They aim to generate a business-friendly environment, according to their own statements. The capital market is relatively easy to navigate in such a case and naturally favors these business- and stock market-friendly positions.
Interview with David Wehner by Christina Lohner
- Despite the failed Trump assassination attempt causing political turmoil, the stock prices remained relatively stable, according to David Wehner, a markets expert and fund manager at Do Investment.
- If the US Presidential Election 2024 results in a Republican victory, the economy and the capital market could potentially benefit from the Republicans' business-friendly policies, as investors generally favor Republican candidates due to their pro-business stance.
- Donald Trump, being a Republican candidate, proposed deregulation, a low-interest-rate policy, and a business-friendly environment during his first term, which positively impacted the stock market, and that historic period could be echoed in the markets if he wins the 2024 election.
