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Analysis
September 13, 2024
On the evening of September 10th, Vice President Kamala Harris debated former President Donald Trump in Pennsylvania. The two presidential candidates clashed on a host of topics including immigration, inflation, the economy, the personal character of both candidates, security and energy policy. There are major policy differences between the two candidates on these issues, issues which have a direct impact on US and global stock markets. We have already explored some of these policy debates and what they mean for your portfolio. As the election looms, traders are reacting more and more to the changing dynamics of a closely fought electoral campaign.
Traders and analysts talk about a ‘Trump trade’, a rotation into certain assets expected to strengthen if Donald Trump wins the 2024 presidential election. One of these is the US dollar, which could benefit from the Republican candidate’s promised tariffs. On the night of the debate, the US dollar fell slightly against the Japanese Yen and the Euro, indicating a weakening of the Trump trade as traders adjusted their expectations for the election winner.
The debate took place against close polling numbers which indicate a slight lead for Democrat Kamala Harris, so traders can expect a choppy market as polls change in the run-up to the election. Outside the US, global risk-off assets sold off slightly, with Japan’s Nikkei 225 and Australia’s ASX 200 posting slight losses the night of the debate. This could indicate equity sell-offs in expectation of a Democrat victory, or simply market expectations of a close and contested result.
Polling suggests many viewers think Democrat Kamala Harris came out stronger in the debate. However, relatively few voters consider themselves undecided, and only a small portion of those will change their vote based on the debate, so it is unlikely Tuesday’s debate will prove decisive.
While the previous US presidential debate set President Joe Biden’s shock withdrawal from the 2024 contest in motion, this debate had few dramatic moments and is unlikely to change the minds of a significant number of potential voters.
The presidential debate’s impact on markets is hotly contested by analysts, with some arguing it is irrelevant to the election result and long-term financial asset prices. Even so, markets react closely to any political event in the run up to an important election, especially when the two candidates are so close in national and state-level polls. Moves now can also help us predict potential reactions to the final result, and this week’s global equity market jitters could be a sign of future market weakness, if the Democrats are victorious in November.
The Trump trade has come under pressure following this debate. Since the Democratic National Convention in August, Kamala Harris has enjoyed a surge in polls, putting her ahead of Trump nationally and in several decisive swing states. But the margins remain close, and polls have Trump narrowing the gap in the days running up to the presidential debate. We will soon see whether Harris’ debate performance translates into a polling surge, potentially sending the US dollar and global stocks lower as traders continue to unwind the Trump trade. The stock market election reaction may be magnified on November 5th if polls remain close, as a tightly fought election makes it harder for traders to adjust their portfolios in advance.
It remains to be seen whether this debate will mark the beginning of a Democratic surge, or if Trump will continue to narrow the gap between the two candidates. But the partial unwinding of the Trump trade shows markets are taking Kamala Harris’ performance seriously. While polling indicates a narrow lead for Harris, results are still within the margin of area and there is well over a month before the November 5th election. That means traders and investors alike need to be ready for significant volatility, especially in Trump trade assets like the USD, or other key election stocks. The US dollar election impact could be significant this time round, so forex traders should pay particular attention to polling moves and political events as the election draws closer.
How does the US presidential election typically impact financial markets?
US presidential elections often cause volatility in financial markets as traders adjust their portfolios based on potential policy changes. The impact can vary depending on the candidates’ proposed policies and their perceived likelihood of winning. Generally, markets prefer clarity and stability, so uncertainty during close races can lead to increased volatility. Specific sectors may be more affected based on candidates’ stances on issues like regulation, taxes, and trade policies. As seen in the 2024 Trump vs Harris debate, even small shifts in polling or debate performances can trigger market reactions, particularly in assets like the US dollar and major stock indices. The impact of the election on the stock market depends on the policies of each candidate and overall market confidence in both the candidate and their party.
What is the ‘Trump trade’, and how does it impact traders and investors?
The ‘Trump trade’ is an emerging trade that looks to profit from the potential results of Donald Trump winning the 2024 presidential election. It involves rotating into specific assets expected to strengthen under a Trump presidency, a mixture of US equities and the US dollar. USD could benefit from Trump’s proposed tariffs on foreign goods and general industrial policy, as well as a strong domestic economy. There are some signs traders have rotated out of this trade in the immediate aftermath of the Trump vs Harris debate. The future success of this trade is likely to closely track Trump’s polling numbers.
How reliable are presidential debates as indicators of election outcomes and what is the presidential debate market impact?
Presidential debates are high-profile events, but not always reliable indicators of election outcomes or long-term market trends. Though traders have adjusted positions following the Trump vs Harris debate, relatively few voters consider themselves undecided, and an even smaller portion change their votes based on debate performances. That means traders trying to profit on the stock market election reaction should be careful assuming a strong debate performance will translate into a November victory. The market reactions observed after the Trump vs Harris debate, such as the slight weakening of the US dollar and minor sell-offs in global equity markets, correspond with polling suggesting Democrat Kamala Harris won the 2024 debate. But it’s important for investors to consider debates as just one factor among many that can influence election outcomes and market trends.
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