Analysis
October 8, 2024
On the evening of October 1st, the last televised debate before the November 5th US Presidential Election took place. This debate followed the highly publicised clash between current president Joe Biden and Donald Trump, and subsequent debate with 2024 presidential candidate and sitting vice president Kamala Harris. The vice presidential debate pitted two relatively unknown candidates against each other: Tim Walz, Democrat governor of Minnesota; and JD Vance, Republican senator from Ohio. Neither candidate enjoys the same enormous recognition or media profile as the presidential candidates. Pre-debate polling indicated around a quarter of all US voters had not heard of either of them, and no clear winner emerged from the contest. But the content and tone of the debate can still offer insight to traders looking to understand the policy impact of a Democratic or Republican victory.
Given the low profile of both candidates, and the lack of a clear winner in Tuesday’s debate, you would be forgiven for thinking that the vice presidential debate doesn’t matter. However, with polls extremely close and just a few weeks left until the election, this debate is significant as the last televised clash between representatives of both parties. On the night, both candidates put in strong performances, with detailed technical debates on policy. Post-debate polling indicates the Republican candidate came out very slightly ahead with most viewers, but that the overall impression of both candidates and of the quality of the debate was positive.
Vice presidential debates do not typically have a big impact on the outcome of the election, nor on markets. But 2024 may be different. Recent weeks have seen intense repositioning as traders move in and out of the Trump trade – long US indices, long US dollar, long domestic manufacturing stocks – as the fortunes of the Republican candidate change. In this environment, where polling remains within the margin of error, and has tightened over the last week, all eyes will be on any events that could shift overall polling numbers in either direction.
Traders following the US presidential election are now looking for any indication of the eventual winner. Over the last few months, a clear market reaction has emerged, with the Trump trade waxing and waning with the polling numbers of the Republican candidate. The vice presidential debate is not as significant a market event as previous presidential debates, but still offers some insight as to both the potential winner and their policy preferences. Given the close result of the debate, neither side claimed an emphatic victory, and polling numbers remain stable. That means the real significance of the vice presidential debate is less in the blows and parries of the electoral campaign, but fine details of policy. On that front, the candidates found themselves agreeing with each other more than not.
The vice presidential debate featured far more substantial policy debates than previous presidential debates. Interestingly, both Vance and Walz voiced support for protectionist measures regarding the US economy and competition with Chinese manufacturing companies. Democratic candidate Tim Walz at one point said ‘I’m a union guy… not one for shipping things overseas’. It appears that despite headline differences on tariffs and foreign policy, both the Democratic and Republican parties are coalescing further around an anti-free trade platform. This clearly differentiates the Harris and Trump campaigns from the US consensus between 1990 and 2016. This is an interesting outcome, and could mean that the Trump trade may perform well whichever candidate wins in November.
The rationale for the Trump trade is that protectionism will boost US manufacturers, tax cuts will increase corporate profits, and addressing the trade imbalance will strengthen the US dollar. Aside from tax cuts and energy, the Democratic and Republican platforms are looking more and more similar on all other policy points. That means certain parts of the Trump trade, above all US dollar strength, may work equally well under a Democratic or Republican presidency.
With the election less than a month away, polls seem to have stabilised. Nationally, Democratic candidate Kamala Harris has a lead of 1 or 2%, but the race is too close to call in the swing states that will decide the election. Just a few votes in states including Pennsylvania, Georgia and Nevada are likely to decide the outcome of the entire race, so traders need to be prepared for either outcome. The Trump trade has dominated discussion of market positioning in the run up to the election. One of the more interesting points in the vice presidential debate was the increasing closeness on trade policy of both Republicans and Democrats. Although there are still substantial differences, particularly on energy policy, this might indicate a more permanent realignment in US politics. That means trades closely linked to Trump’s protectionist policies, especially long US dollar and short emerging markets currencies like the Mexican peso, could potentially perform well whoever wins the race to the White House.
How did the 2024 vice presidential debate impact the election?
The debate between Democratic candidate Tim Walz and Republican JD Vance so far has had a minimal impact on polling, which remains close and unchanged. Audience surveys indicate both candidates performed well, with Vance coming out slightly ahead in some polls. However, the debate’s main significance was in highlighting policy details rather than shifting voter opinions, and this is where it will have the greatest impact on traders.
What is the Trump trade?
The Trump trade refers to a emerging market strategy that tracks the polling numbers of Republican candidate Donald Trump. Key parts of the trade include going long on US indices, the US dollar, and domestic manufacturing stocks. This strategy has been fluctuating with Trump’s polling numbers throughout the campaign, and is linked to his positions on trade policy and taxation.
How did the candidates’ views on trade policy compare?
Somewhat surprisingly, both Walz and Vance expressed support for protectionist measures and showed scepticism towards free trade, particularly regarding competition with Chinese manufacturing. This suggests a potential convergence of trade policies between the two parties, which could indicate a robustness in the Trump trade whichever candidate wins.