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Betting markets have boosted Trump’s chances of winning the presidency after the failed assassination attempt he suffered over the weekend. In the stock market, shares of the social network $DJT are up 70% in pre-market trading, and I expect other companies to follow suit.
As for the broader market, S&P 500 futures are up 22 points, and I wonder if this is undervalued given the political shifts that appear to be coming.
One thing I’m trying to figure out is the House of Representatives. Many Democratic constituencies were leading Biden by a wide margin, so there was a good chance the Democrats would take the House. A Trump presidency with a Democratic House is very different from a Republican sweep (I assume the Republicans would win the Senate).
Polymarket is making a market for control of the House and you could see a shift to 45% for the Democrats but that looks high and the market is thin.
There may be a clearer signal in bonds as a sharp downtrend unfolds today, similar to what happened after Biden’s debate performance. The short end is flat today while the long end is up 6bps. That means the 2s30s are not inverted for the first time since January.
United States 2s30s daily
If we translate this into the FX market, the message here is that Republicans will sweep in larger deficits and lower taxes. This will be good for stocks and the US dollar while keeping interest rates high. At some point, you may have supply concerns in Treasuries, and that’s hard to gauge, but in the FX market, I can envision a scenario unfolding where the US dollar continues to be materially superior.
But again, politics is hard to predict and there is still a long way to go until November.
