The ‘Trump Trade’’’- Knee jerk reaction or longer-term move?

On Saturday evening, 13th July, 2024, ex-President Donald Trump was giving a speech in western Pennsylvania to his supporters in a bid to rally them in preparation for the upcoming presidential election. More than 10,000 attendees were reportedly at the event.

11 minutes into his speech, when Mr Trump was making a reference to statistics on immigration, a gunshot was heard. Mr Trump flinched and reached for his right ear as a few more rounds were fired. Secret Service agents rushed to cover Mr Trump in a bid to protect him. Everyone knows what happened next as Mr Trump pumped his fist into the air, asking his supporters to fight on as he was whisked away to safety.

In the moments following the assassination attempt, the cryptocurrency market which trades 24/7 saw bitcoin rallying by about 8.8% (as at time of writing). This happened as traders took the failed assassination attempt in a positive light. Seeing it as an event that pushed trump closer to securing his 2nd presidential elections victory. BTCUSD is currently positively correlated with the S&P 500 index and is generally used as its proxy over the weekends when the US stock markets are closed.

The move, in our opinion is more of a knee-jerk reaction and a short lived one as BTCUSD is currently shaping a double top reversal chart pattern on the weekly timeframe. As long as price holds below 67700 resistance, we see only limited upside potential for this asset. In fact, there is a bigger probability with the confirmation of the double top reversal pattern, BTCUSD could very well drop lower towards 50800 support.

US S&P 500 futures was pretty muted at the start of the Asian trading session this morning after the assassination attempt. While futures gapped higher at the open, it immediately pulled back lower, erasing any meaningful intraday gains before consolidating sideways. While short-term price movements will be more volatile, we do not expect longer-term price movements to deviate from the bigger picture, which is still uptrend.

Very much in line with our H2 2024 market outlook, markets are going to see more volatility ahead and traders will be facing increasingly VUCA (volatile, uncertain, complex and ambiguous) markets and near-term weakness in the equity markets can be expected as the broader market starts to catch up with the tech megacaps as long as there is a healthy intergration of AI within their products.

In the event that Mr Trump wins the presidential election (in another 4 months), markets are already pricing in what they call the "Trump Trade" which is easily summarised as protectionist and peppered with tariffs and tax cuts. This is in a bid to increase labour participation in the economy along with boosting domestic consumption while applying tariffs on exports from competitor countries such as China and the Eurozone.

Another key component of the "Trump Trade" is that Mr Trump's fiscal and trade policies will fan inflationary pressures further, reversing much of what the US Fed has been doing for the greater part of 2024. With his loose fiscal policies and trying to strong-arm the US Fed previously, the US yield curve saw further steepening.In line with our H2 2024 market outlook, a steepening in the yield curve now will be particularly concerning given that historically, when the yield curve steepens from an inversion, a sell off in the S&P is due to follow. We may see a rising demand in safe havens such as gold, along with an increase in demand for short-term US treasuries.

Near term market volatility will be expected as the presidential race heats up. Even though the current sentiment is that Trump is well ahead and in favour to win his 2nd victory, we still have about 4 months to decision and given the surprising nature of how elections have turned out this year, investors should still expect the unexpected.

Investors should stay nimble, focusing on the broader market, looking at other sectors that are starting to adopt AI widely. At the same time still holding onto short term US treasuries and being ready to allocate more capital in an event of further steepening.