US stocks "welcome" Trump's trade, Morgan Stanley warns of risks: Long-term political violence is "very unfavorable" to the market

Intelligence Finance has learned that after the shooting of Donald Trump, the US stock market rebounded on Monday, with investors believing that his chances of winning have increased. Even before the shooting on Saturday, investors had anticipated that certain assets such as cryptocurrencies, the US dollar, and some oil stocks would benefit from Trump's re-election. Now, Wall Street seems more convinced that he will win the election. However, Monday's rebound does not mean that the market has become clear. Thierry Wizman, global foreign exchange and interest rate strategist at Macquarie, wrote in an analysis report released on Monday morning: "History tells us that long-term political violence in democratic societies is very unfavorable for markets and risk-taking."

Analysts refer to this type of trading as the "Trump trade," referring to the expectation that certain asset classes will perform better if he takes office. He cited the "Years of Lead" in Italy from the late 1960s to the mid-1980s, as well as the Northern Ireland conflict from the late 1960s to 1998. The "Years of Lead" in Italy involved prolonged political struggles between neo-fascist and communist terrorist organizations, including multiple bombings and the kidnapping and assassination of Prime Minister Aldo Moro in 1978. In the Northern Ireland conflict, Protestants and Catholics were involved in a guerrilla war over whether to remain in the UK, resulting in 3,600 deaths.

According to Wizman, the ultimate features of these two violent periods were reduced investment, brain drain as talented individuals sought opportunities abroad, and a decline in the tourism industry. Wizman stated that if political violence continues here, foreign investors will think twice about investing in the US. Wizman said, "From an outsider's perspective, the US will no longer be a place suitable for investment and entrepreneurship."

Moreover, as the world's largest economy, any issues faced by the US will have broader global implications than those in Northern Ireland and Italy. According to Wizman, if the US economy is hit by sustained political violence, it will "spread to other parts of the world," affecting global trade, global security, and the protection of international law. He said, "We are the largest developed democratic country and economy, so there really is no precedent."

Wizman also added that the US economy is facing stubborn inflation, and political violence could exacerbate inflation. Markets have long expected that a Trump victory in the election would lead to increased inflation, which could be the result of another round of corporate tax cuts, tariffs on all foreign goods, and deregulation. This is reflected in the fact that every time Trump seems to gain election support, US bond yields rise, as was the case after the shooting on Saturday. Wizman wrote in the report that on Monday, the 30-year US bond yield reached the same level as the 2-year US bond yield, both hovering around 4.46%. Bond yields also rose after the presidential debate in June, when President Biden's performance hit a historic low, increasing the likelihood of Trump's victory in November Wizman did point out that the rise in bond yields is a result of Trump's victory in the election, rather than the possibility of political violence. In fact, during periods of political turmoil, bond prices tend to rise, leading to a decrease in yields as investors consider them relatively safe assets.

Following the assassination incident, political leaders emphasized unity. President Biden delivered two national addresses over the weekend, one shortly after the attack on Trump on Saturday and another on Sunday from the Oval Office. Biden stated on Sunday, "In America, while unity is currently the most difficult goal to achieve, there is nothing more important for us now than coming together."

Trump also expressed a tone of unity. "At this moment, more than ever before, it is crucial that we stand united, demonstrate the true character of us as Americans, maintain strength and determination, and not allow evil to prevail," the former president wrote on his Truth Social account, also condemning the ongoing criminal investigation