The U.S. financial markets are on high alert following a distressing incident involving former President Donald Trump at a campaign rally in Pennsylvania. This incident, occurring amidst the presidential race, has prompted a spectrum of reactions from market participants, ranging from shifts in investment towards safe-havens like Treasurys and gold to recalibrations in the stock market predictions based on election outcomes.
Sunday night’s markets are bracing for impact as they assess the implications of what many are calling a dark chapter in U.S. history—an apparent assassination attempt on Donald Trump. Initial responses suggest a potential surge in safe-haven assets, although history indicates such moves might not be long-lasting. Over the decades, markets have typically rebounded swiftly from political shocks.
The focus is also intensifying on how this incident could influence the electoral battle between Trump and current President Joe Biden. Keith Lerner, a top strategist at Truist, opined that while the event is profoundly tragic, its immediate market impact might be limited. Nonetheless, the betting markets have adjusted, showing heightened expectations of a Trump victory following Biden’s recent underwhelming debate performance.
Since March, the S&P 500 has shown a positive correlation with Trump’s rising election prospects, suggesting that market performance is increasingly tied to political expectations rather than policy specifics. Meanwhile, the prediction that a Trump victory would favor markets has bolstered investments in stocks and the U.S. dollar, overshadowing bonds and other traditional safe havens.
Bob Elliott from Unlimited Funds highlighted that a renewed push for deregulation and continuation of corporate tax cuts under a potential Trump administration could invigorate the stock market. Conversely, this scenario could weaken the bond market, as evidenced by a spike in Treasury yields post the June debate—a trend potentially exacerbated by the recent political turmoil.
Despite the conventional wisdom that U.S. political instability triggers a flight to quality in Treasurys, Mark Rosenberg of GeoQuant notes an emerging trend: higher U.S. political risk may actually be starting to correlate with longer-duration Treasury yields. This suggests a dilution in the traditional flight-to-safety behavior, a significant shift if it continues to develop.
2024 has seen substantial gains in the stock market, typical of an election year, with the S&P 500 up nearly 18% led by megacap tech stocks, though the Dow Jones Industrial Average has seen more modest gains. This performance mirrors the market’s reaction during the Reagan assassination attempt in 1981, which also featured a sharp but temporary shift in market dynamics.
As the U.S. gears up for the Republican convention and the forthcoming election, Truist’s Lerner advises market watchers to consider broader economic indicators such as growth trends, inflation, and corporate earnings, which are likely to be more indicative of the market’s direction in the near term.
In conclusion, while the shocking event at Trump’s rally introduces an element of uncertainty, the overarching market dynamics continue to be driven by a complex interplay of electoral outcomes, economic indicators, and historical precedents. Investors are reminded that while political events can trigger immediate market reactions, the long-term trajectories are often governed by deeper economic fundamentals.
