The moment the bullet grazed him, the outcome of the US presidential election was almost certain! "Trump Trade" may sweep through the financial markets

According to the financial news app Zhitong Finance, following the shooting incident involving US presidential candidate Donald Trump, his lead in the election support rate has rapidly increased, surpassing the incumbent president Biden comprehensively. The so-called "Trump trade" seems to be gaining more momentum. Since Biden's poor performance in last month's presidential debate boosted Trump's prospects of winning, the "Trump trade" has become popular. Traders and strategists agree that Trump's election will stimulate a combination trade benefiting from loose fiscal policies and greater protectionist inflation - the US dollar strengthening, US bond yields rising, and stocks in banks, healthcare, and energy sectors increasing.

In the financial markets, investors generally believe that the attack on Trump may become one of the most important turning points in the US election, strengthening Trump's political leadership image overall, especially in the minds of his supporters, who see him as one of America's historical heroes, with some media even comparing him to Roosevelt. Some Republican supporters even believe that Trump, under "divine protection," surviving the bullet means he is destined to be the next president. In contrast, weaknesses in the on-the-spot response, speech logic, and internal party support rates of Biden, the opponent from the Democratic Party, are more pronounced.

Tesla CEO Elon Musk made several posts on social media platform X (formerly Twitter) over the weekend in full support of Trump's campaign for US president following the shooting incident involving Trump. In Musk's first social media post, he, who has not disclosed any clear election preferences for a long time, stated that he would wholeheartedly support Trump.

In early Asian trading on Monday, the US dollar rose against most currencies. Bitcoin rose above $60,000, seemingly reflecting Trump's crypto-friendly stance. Mark McCormick, global head of foreign exchange and emerging market strategy at Toronto Dominion Bank, said, "For us, this does reinforce the fact that Trump is the frontrunner in the US election." "We remain bullish on the US dollar in the second half of this year and early 2025."

However, the risk lies in the fact that the emergence of political violence may deepen people's concerns about the instability of the US market and drive investors into safe-haven assets. For example, when investors temporarily seek safe havens, US bonds often rebound, which may distort the "Trump trade" in the US bond market - betting on a steepening yield curve as people expect Trump's fiscal and trade policies to exacerbate inflation pressures, leading to poor performance of long-term US bonds. In addition, some investors may wish to take profits early as a result, or approach further buying in a cautious manner in already crowded positions.

Priya Misra, portfolio manager at JP Morgan Asset Management, said, "Political risk is binary, difficult to hedge, and highly uncertain." "This increases volatility I believe that this (shooting incident) further increases the possibility of a big win for the Republican Party. This may bring steep pressure to the US bond yield curve."

While traders generally believe that the attempted assassination of Trump will not disrupt the trajectory of the stock market in the long run, recent price fluctuations may intensify. Given the prosperity of AI stocks and the risks posed by high interest rates and political uncertainty, the market has been struggling with speculation of overvaluation. At the same time, investors have been expecting stocks in the banking, healthcare, and energy sectors to benefit from Trump's victory.

David Mazza, CEO of Roundhill Investments, said, "The shooting incident will exacerbate volatility." He expects investors to seek temporary safety in defensive stocks such as large caps. He added that this also provides support for stocks that perform well in a steepening US bond yield curve, especially financial stocks.

Michael Purves, CEO and founder of Tallbacken Capital Advisors, said, "If the market feels that the chances of Trump winning are increasing, we expect long-term US bonds to be sold off, just as we saw after the end of the presidential debates." He stated that while bond traders have already anticipated at least two rate cuts by the end of 2024, a significant increase in Trump's chances of winning could lead the Fed to maintain rates unchanged for a longer period. He said, "The policies Trump has claimed (at least for now) are more likely to trigger inflation than Biden's policies."