Why shots on Trump are cooling the markets
During politics and society's reaction to the failed assassination attempt on Donald Trump with horror, there are hardly any 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 would 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 long overshadowed the markets. 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 currently see with Meloni in Italy. The markets also dealt only briefly with the Brexit, which dominated the capital markets for approximately one month. However, it then became clear that the process would take years and there would 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 regulatory measures for Chinese tech giants, and now the 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 a security disaster and a grave shock for many. However, the markets may have been calmed by the fact that Donald Trump was only lightly wounded. If he had been seriously or even mortally wounded, there could have been riots, which the markets might have perceived as very strong domestic political uncertainty and which could have led to falling prices. "Safe havens" such as 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 come to terms with the fact 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 with a gunshot wound only boosted the poll numbers again. But for the markets, it is not a new situation, the distance to the Democrats has only increased.
Many investors are now assuming that Trump will run for re-election.
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 apparent, the markets are relatively relaxed about the US election.
Are the markets right to be relaxed?
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. This is evident today on European stock exchanges. They are not reacting strongly, but negatively. US stock exchanges started the day positively, European ones lightly negatively. This applies to the DAX and the French CAC 40 as well as to the Euro. While returns in the USA 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 have a recessionary effect, 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.
Does this keep investors permanently cold?
Despite the euphoria of yesterday, the markets are still in a strength phase. However, it would not surprise me if some investors reconsidered the situation and reassessed the consequences of a Trump re-election. We could therefore see correctional 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 indebted, 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, continuously 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 therefore do not 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 frightening 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 upswing, and the global stock markets profited from it in 2017 as well.
Do the markets like Trump for that reason?
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 increased, and the global economy recovered. There were several reasons for this, including China devaluing its currency and implementing a business-friendly policy. However, the economic upturn coincided exactly with Trump's presidency. Markets anticipate this almost as if for a second term of Trump and speculate on a repeat.
However, the starting situation today is completely different.
Yes, such predictions are very difficult to make, as the economic situation was very different then compared to 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 costs. Therefore, the historical comparison was too simplistic from my perspective. Above all, it is still unclear how the US Congress will be composed. 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 some protectionism, especially towards 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 likely 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 past 30 to 40 years for our prosperity. Global trade led to cheaper products, for companies and consumers alike. Over decades, location and production advantages have contributed to economic gains and thus also to wealth and stock market values. Protectionism will at least partially reverse these prosperity gains. The USA have profited strongly from globalization and have generated location advantages, especially in the technology sector. They have drawn the largest profits from the import of skilled labor. As a result of their dominant position in areas like technology, the USA could 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 election outcome be influenced by the assumptions of investors?
No. If the markets are still under pressure before the election, this could be an additional burden for the Democrats. In the USA, many things like pensions 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 over Democrats?
Investors generally favor Republicans over Democrats due to their perception that Republican policies are more business-friendly and less likely to result in increased taxes and regulations. This perception, whether accurate or not, can influence investment decisions and market sentiment. Additionally, some investors may align themselves with the political ideologies of the Republican Party, further influencing their investment decisions.
They stand for deregulation, strengthening the economy, expansionary fiscal policy, and are fond of low-interest-rate policy. They aim to generate a business-friendly environment, according to their own statements. The capital market is relatively simple to navigate in such a case and naturally prefers these business- and stock market-friendly positions.
Interview with David Wehner by Christina Lohner
In the context of the interview, Wehner mentions the European elections as an example of how markets focus on political events for a short period before quickly recovering if election outcomes don't drastically alter expectations.
Regarding the Trump assassination attempt, Wehner suggests that the markets were probably calmed by the fact that Trump was only lightly wounded, preventing a potential period of strong domestic political uncertainty that could have negatively affected stock prices.
As the interview discusses, investors often favor Republicans over Democrats due to their perception of Republican policies as more business-friendly, which can positively influence market sentiment and investment decisions. This sentiment may be particularly relevant in the context of the upcoming US Presidential Election in 2024.
