Financial markets thought Donald Trump was the victor in the first U.S. presidential debate against a frail President Joe Biden and investors are “already busy” re-evaluating their portfolios to align with the anticipated economic policies that a Trump administration might pursue, Nigel Green, CEO of deVere Group, said in a post-debate note to investors.
While most pundits have said they believe Trump prevailed in the debate, Green pointed to the shifting odds on PrecitIt.org, an online betting firm, as evidence of Trump’s ascendency in investors’ minds. Biden’s odds of winning the 2024 election fell to 39% from 45% after the debate, while Trump’s rose to 61% from 55% and are now hovering at 58 cents, which translates to a 58% chance of victory.
As part of the fallout from the debate, the U.S. dollar jumped in Asia trading “indicating increased confidence among investors in the stability and growth potential of the U.S. economy under a Trump leadership, with the greenback on track for a sixth straight weekly gain,” Green said.
At the same time, the yen weakened slightly, trading around 161 per dollar, reflecting a shift in investor sentiment towards the dollar, he added.
Bitcoin, the world’s dominant cryptocurrency in terms of market capitalization, “also spiked as Trump is widely regarded as more pro-crypto than Biden,” Green noted.
U.S. stock futures also experienced a rise in early Asian trading hours, again demonstrating investor confidence in a potential Trump administration, Green said. “This uptick suggests Wall Street expectations of favorable economic policies that could stimulate market growth,” the analyst said.
By the end of the day, U.S. stocks were down slightly. Among some institutional investors, there is a belief that a Trump victory would favor value stocks like energy and financial shares, while a Biden win would benefit growth stocks in areas like alternative energy and EVs.
The deVere CEO said four key factors are driving investor sentiment around what in early polling at least appears to be the likelihood of a Trump victory.
“First, investors anticipate that a Trump presidency would bring about lower corporate taxes. This would enhance corporate profitability, leading to increased stock valuations and greater investor returns,” Green said.
Second, given that Trump’s previous term “was marked by significant deregulation efforts, investors expect regulation cutting to continue. This would reduce compliance costs for businesses, allowing for greater innovation and expansion,” he said.
Third, while tougher trade relations with China might introduce short-term volatility, “many traders hope that it will lead to stronger domestic industries and a more resilient U.S. economy,” Green said.
“Fourth, anticipated fiscal policies could drive bond yields higher, providing attractive opportunities for fixed-income investors,” he added.
Given the current market assessment, the deVere Group CEO said “investors are already busy” considering strategies to position their portfolios more favorably for a potential Trump presidency.
“They are likely to be increasing exposure to U.S. equities with a focus on sectors that are likely to benefit from deregulation and lower taxes, such as tech, energy and financial services,” he said.
With the dollar showing strength, investors can be expected to diversify into stronger-performing currencies, including the dollar and bitcoin, which “can provide a hedge against volatility in other markets, Green said.
On the bond side, investors are likely to be preparing for higher bond yields by adjusting bond portfolio duration and considering inflation-protected securities, he predicted.
Not all analysts and advisors believe a Trump presidency would be a home run across the board of investors. “I think there are areas within the market it helps (liquified natural gas, for example), and other areas it hurts (those impacted by trade with China, the EV space, etc.). But to evaluate it in the context of the whole market and the whole economy, we would also need to know the outcome of the Senate and the House,” David L. Bahnsen, founder of the Bahnsen Group, said.
Trump was, however, better at changing the tax system to attract investments, he said. “As evidenced by the $1.6 trillion of foreign profits that repatriated to the U.S. in the aftermath of the Trump/Ryan corporate tax cuts, the answer is President Trump,” Bahnsen said.
As for which candidate will be better at eradicating inflation, “the president will play no role—none whatsoever—in curing inflation,” Bahnsen predicted.
“Both Trump and Biden are big spenders, and both have used tariffs," he said. "But the cause of our recent inflation was supply-driven out of Covid shutdowns, and not something I believe to be perpetual. The need of the hour is economic growth, and President Trump’s platform is more focused on such than Biden’s, but not perfectly so."