"The Trump Trade" restarts, what's different?

With less than three weeks left until the US presidential election, the market is once again witnessing a familiar scene - the "Trump trade", but the latest market trends show that this time seems to be different.

As the competition between Trump and Harris intensifies, market sentiment is also becoming tense. In recent weeks, small-cap stocks, Bitcoin, and other assets have risen, while the Mexican peso and US Treasury bonds have fallen.

A series of market performances inevitably reminds people of the "Trump trade" that appeared earlier this year when he was leading President Biden in the polls, but as Biden withdrew, these trades also faded away.

Expectations of Trump's Victory Surge, Market Reacts Strongly

Despite Harris leading Trump in the latest opinion polls, Trump's support in key swing states is rising. According to data from the 270toWin website, as of October 15th, Trump has taken the lead in 6 out of 7 swing states. Ping An Securities predicts that if this trend continues, Trump could win over 300 electoral votes and easily secure victory.

Not only that, Trump is also in a leading position on online prediction platforms such as Predictit and Polymarket, with Polymarket significantly increasing bets on a "Republican sweep". Analysis points out that the expectation of a "Republican sweep" may strengthen the "Trump trade".

The market has reacted strongly to this, with the biggest gainer being companies like the Trump Media & Technology Group, whose stock price has risen by over 140% since September 23rd. Since its listing this year, the company has been closely tracking Trump's fate in opinion polls and online prediction markets. Steve Sosnick, Chief Strategist at Interactive Brokers, commented, "This is the most impactful trade on Trump's election prospects".

What's Different This Time Compared to Last Time?

Earlier this year, as June inflation data cooled more than expected and Trump's support rose after the assassination attempt, small-cap stocks surged, with the Russell 2000 index accumulating a 10% increase at one point, marking the strongest weekly performance relative to the Russell 1000 index. At the same time, the tech-heavy Nasdaq index saw its largest single-day percentage drop since December 2022. Benefiting from the logic of the "Trump trade", US energy, manufacturing, and financial sectors performed strongly.

The recent resurgence of the "Trump trade" differs in many ways from before. Analysts at Ping An Securities, Zhong Zhengsheng, Zhang Lu, and Fan Chengkai, pointed out in a report that from October 14th to 16th, expectations of Trump's re-election suddenly surged, driven by factors such as escalating Middle East tensions, hurricane impacts on swing states, poor performance in Harris' interviews, and rising voter concerns about inflation. The new changes in the "Trump trade" include more resilience in US tech stocks, weaker performance in energy stocks, no rise but a drop in US bond yields, and stronger performance in goldHowever, the current election situation is still in a deadlock, and the uncertainty of the "Trump trade" remains. There are three reasons for this:

First, although Trump has started to "overtake" in key swing states, the margin between the two is very small.

Second, among the issues that voters are currently focusing on, the Democratic Party is also actively seeking a breakthrough. In the Middle East, the Democratic Party is also beginning to pay attention to military spending issues. In terms of natural disasters, the recent disturbances caused by hurricanes in the United States present an opportunity for the Democratic Party. Harris has a complete chance to demonstrate the leadership of the new government and turn the tide.

Third, there is another employment data on November 1st that needs to be observed. If the employment performance is strong, it may further win some votes for the ruling Democratic Party.

Ping An Securities also stated that a series of factors outside the election, including the prospects of a "soft landing" for the U.S. economy, the path of the Fed's interest rate cuts, international geopolitical situations, and oil price fluctuations, are also important variables for the U.S. and global markets in the near future.

Not All Thanks to Him

Other institutions also hold similar views. Analysis believes that it is more difficult this time to link investment trends with Trump, as many changes can also be attributed to the strong performance of the U.S. employment report this month and the optimistic sentiment following the Fed's 50 basis point rate cut last month.

Steve Sosnick, Chief Strategist at Interactive Brokers, also stated:

"Certainly, part of this is driven by Trump's elevated position in predicting the market, but it is difficult to identify causality."

Sonu Varghese, Global Macro Strategist at Carson Group, believes that "the election results are still unpredictable" and added, "the real theme of the story is stronger economic growth and the support of the Fed"