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What exactly is the
Wall Street began to disagree on the "Trump Deal".
The so-called "Trump trade" actually refers to a series of investment operations conducted by investors based on Trump's policy expectations, which usually include shorting long-term government bonds, making more cryptocurrencies and investing in risky stocks, such as small-cap stocks. The logic behind it is that Trump's policies such as tax cuts, deregulation and trade protectionism will have different effects on different asset classes.
Trump deal cools down
Although "Trump Trading" sounds reasonable in theory, investors don't seem to buy it. On Monday, the US capital market did not continue the trend of "Trump Trading": the yield curve of US Treasury bonds leveled off and the dollar fell. Although Russell's performance at the close of 2000 was still slightly ahead of the S&P 500, it also meant that there were differences on "Trump Trading" within Wall Street.
Some analysts pointed out that there are still four months before the November election in the United States. During this period, investors have to digest a large number of financial reports of US stocks and two Fed meetings. Before the election results are released, there will still be a lot of variables. Now continue to speculate on "Trump Trading" will be full of great uncertainty.
As Howard Marx, the founder of Oak Capital, pointed out in the latest investment memorandum on July 17th:
During the 2016 presidential election, almost everyone was convinced of two things: 1. Hillary Clinton would win. 2. If Trump wins unexpectedly, then the US stock market will collapse.
However, the result was that Trump won, and then US stocks rose by more than 30% in the next 14 months.
This incident fully proves: 1. People can't actually predict the direction of things; 2. I don't know how the market will react after things happen.
Today's American election is full of uncertainty: the undecided presidential candidate of the Democratic Party, the uncertainty from the Fed policy to geopolitics and the valuation of US stocks all make investment more complicated.
This also makes Wall Street analysts and economists have very different views on how Trump's election as president will affect financial markets.
Divisions on Wall Street
The biggest disagreement on Wall Street comes from the fact that the impact of the policies promoted by Trump's campaign may be contradictory. For example, his most popular tax cuts may push up inflation and interest rates, while his signature tariff increase policy may depress consumer spending and curb inflation. This contradiction makes it difficult for the market to form a consistent view of the "Trump deal".
According to a survey by Bank of America, nearly three-quarters of the investors surveyed believe that if Trump wins the election, it will push up the bond yield. However, Bank of America's own strategist Michael Hartnett disagreed with this result. In a report last Thursday, he pointed out that don't believe too much in this Trump transaction explanation. No government would want prices to keep rising. The reality of the election is that voters think inflation is their biggest concern.
Chen Zhao, chief strategist of Alpine Macro, also pointed out that although tax cuts will push up long-term interest rates, another favorite policy of Trump-increasing tariffs-often has the opposite effect by squeezing consumer spending.
My opinion is: Trump's tax cuts will be bad for long-term bonds, while tariffs will be good for bonds. But if Trump does these two things at the same time, it is all wet.
In terms of dollar and bond yields, most strategists, including Deutsche Bank, Alpine Macro and Barclays Bank, believe that Trump will boost the dollar after he takes office. After all, investors tasted this taste in Trump's first term. At that time, after Trump won the election, the dollar initially jumped with the bond yield until his trade policy suppressed economic optimism.
However, economists at Jefferies, an investment bank, believe that if Trump exerts political pressure on the Fed, the attractiveness of the dollar as a wealth reserve may become smaller (the dollar will weaken).
Lindsay Rosner, head of fixed income investment at Goldman Sachs, said that in any case, if Harris eventually becomes the Democratic nominee and continues Biden's policy, the yield curve may become steep.
Neither candidate has discussed any form of fiscal restrictions, which have been priced into the yield curve. Many things have changed, so it is not prudent to anchor your portfolio to a specific outcome.
Brian Jacobsen, chief economist of Annex Wealth Management Company, pointed out that the most secure transaction now is to switch to small-cap stocks, mainly because the valuation of small-cap stocks is cheap. Whatever the political outcome, this is a good bet.
Therefore, in this complicated situation, it is not only possible to trade on political headlines, but also to analyze macroeconomic data and Fed policies.
Wolf von Rotberg, equity strategist at J. Safra Sarasin, said: "What really matters is the macro data we have at present, which may change greatly before the November election. We have seen a slowing economic cycle. This will determine the interest rate space, and interest rates will have an impact on the stock market, which will have a more substantial impact on the market than politics. "
As Howard Marx said: The most important job of investors is to manage risks, because we never know what will happen in the future.
Risk warning and exemption clause
The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.