Investors are keeping calm and holding on as thoughts of a second Donald Trump presidency begin to bubble after President Joe Biden failed to show up during a primetime debate.
“The biggest takeaway from last week’s debate was that the market is comfortable with Donald Trump being the next president,” Bradesco’s head of equity strategy Ben Laidler said on my “Opening Bid” podcast (video above or listen here). “We saw markets move up a little bit and we didn’t see that volatility.”
Trump and Biden left debate spectators stunned, with the former spreading lies and the latter appearing weak and out of touch.
However, since the debate aired on the evening of June 27, the S&P 500 (^GSPC), Nasdaq Composite (^IXIC) and Dow Jones Industrial Average (^DJI) have fallen only fractionally.
Shares of market leader Apple (AAPL) are up about 1.6%, while Amazon (AMZN) saw a sideways trend.
Morgan Stanley strategist Mike Wilson said he had received interest from clients the morning after the debate about rotating into “Trump Trades” in 2016 in the cyclical and small-cap sectors.
“We believe market expectations for fiscal expansion, reflation and less regulation under a Trump presidency were the driving force behind these initial steps,” Wilson said in a note to clients.
There is one area we need to watch to see if Laidler’s thesis is completely correct: the booming AI business.
Shares of AI leader Nvidia (NVDA) fell 3% as a result of the debate.
Laidler said: “I think investors look back at the first Trump presidency and say, you know, that was pretty pro-business and I made a lot of money on it. Maybe we’ll see a repeat of that.”
Investors have generally enjoyed solid returns during the Trump presidency, despite several surprise events such as the COVID-19 pandemic and the storming of the Capitol. Not to mention new tariffs on key trading partner China.
The Dow Jones Industrial Average returned 56% during Trump’s presidency, according to data analyzed by LPL Financial. The Dow posted 126 new highs.
The S&P 500 rose more than 50%.
Apple’s stock has soared more than 350% during Trump’s presidency, part of a broad rally in tech stocks.
Experts say the gains are largely due to Trump’s tax cuts, which boosted corporate profits, and the wealth effect of stocks, which boosted consumer spending.
But those expecting Trump to have nothing but sunshine as president may need to adjust their expectations a bit, at least initially.
Wilson points out that the environment for equities is very different from 2016.
“We would argue that the cycle is now more mature than it was in 2016, as evidenced (among other things) by the two-and-a-half-year decline in the Conference Board Leading Economic Indicator series,” Wilson said.
“The market welcomed a reflation playbook in 2016. Inflation was not a headwind for consumers as it is today, and the US economy recovered from a manufacturing/materials recession, the recovery of which was aided by the prospects of a pro-fiscal/reflation policy regime. Today, inflation is a notable headwind for consumers and the dynamics of fiscal sustainability are at the top of the bond market’s agenda.”
Ford (F) CEO Jim Farley says consumers may be getting a little nervous around the presidential election, but he doesn’t believe it will materially hamper demand for cars. Check out Farley’s insights below in an “Opening Bid” episode.
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