Trump Dodged a Bullet, but the Market Will Feel the Impact
Bond yields move higher on greater likelihood of a Republican sweep, as Tesla climbs in premarket.
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Early on Monday morning, the indexes are higher, with the Russell 2000 leading the way. Trump Media and Technology Group DJT is soaring more than 50%, and other stocks that are viewed as leveraged to a Trump election victory are marking large moves. Tesla TSLA is jumping 4.6% after Elon Musk fully endorsed Trump after the shooting.
The failed assassination attempt on the former president is having a profound impact on the election, where the odds of a Trump victory have suddenly increased, and the Trump campaign is now more focused on expanding its support and bringing more groups into the Republican tent. The question for investors is how this sudden shift will impact the stock market.
There are a few stocks and sectors that are viewed as influenced by Trump policies, such as solar energy and the sector's exchange-traded fund Invesco Solar ETF TAN, Palantir Technologies PLTR, and bitcoin IBIT, but there will be an intense debate now over Trump's possible influence on economic growth, tariffs, and inflation if he wins in November.
The odds that the Republicans could sweep the House and Senate in addition to the Presidency have increased, and that is typically not a market positive. The market generally prefers gridlock, which helps keep spending in check. Although Republicans often talk about cutting spending, they aren’t very effective at it when they are in complete control. Bond yields are moving higher on Monday morning on the greater likelihood of a Republican sweep.
Emotions are running very high right now, and with the Republican convention taking place this week, there will continue to be dramatic rhetoric and shifts in political sentiment. The market already has earnings and economic news in play, and with the political backdrop, there is likely to be higher levels of volatility.
The two market events that will matter the most right now are, one, whether the rotational action into smaller stocks and out of big-cap technology will continue, and, two, earnings season. The rotation was triggered by the increased likelihood of two interest-rate cuts this year. If this rotation can gain further traction it bodes very well for the market.
As for earnings season, the banks kicked things off and reacted rather poorly, but the big issue will be whether artificial intelligence-related big caps can gain further momentum on their reports. Expectations are very high, and valuations are aggressive. It is going to take some very good news to keep them running, but if they do struggle, will that hasten a rotation into the rest of the market?
We have some big emotions in play and plenty of news flow. Volatility will be elevated, and that should present opportunities for traders.
At the time of publication, DePorre was long PLTR.
