At its simplest, a “Trump trade” is betting on asset classes that are likely to get a boost from the Trump administration’s policies.
In general, this means escalating protectionism and spending – both of which are seen as leading to inflation through higher import costs and a higher dollar/interest rate.
Major bond investors are already said to be avoiding long-term US Treasuries, fearing Trump’s trade and economic policies, despite assurances from the Trump team that they are the best solution to lower interest rates and shrink the deficit.
“Interest rate volatility is likely to remain higher as a result of financial and other factors,” Chitrang Purani, fixed income portfolio manager at Capital Group, which manages more than $2 trillion in assets, told Reuters over the weekend. “I think a lot of that is a function of this uncertainty around debt and the supply deficit.”
As a result, Capital Group is underweighting Treasuries with maturities of 10 years and above, while offsetting this position by increasing its weighting on intermediate maturities.
BlackRock, the gaming giant and the world’s largest money manager with $10.7 trillion in assets, has also said in recent days that it is “bearish” on any Treasury bond longer than 10 years.
Another potential impact of higher tariff walls surrounding the United States is on small U.S.-based businesses, especially manufacturers.
While the shift from big tech to small-cap stocks has been driven in part by concerns about expensive valuations, there is a sense that small companies may benefit from protectionist policies, at least in the short term.
We have seen big tech companies exit the market.&The tech sector in the S&P 500 index has fallen about 6% — or $900 billion ($1.3 trillion) — in the past week alone, while the Russell 2000 index of small companies has jumped more than 7%.
Recent speculation about tightening export controls on semiconductor technology to China has been the main driver of much of the correction, a policy the Trump administration is likely to support.
Another part of Trump’s business is bitcoin, which has jumped more than 10% since the failed assassination attempt on Mr. Trump last week.
The former president wasn’t always a big fan of cryptocurrencies, but it’s fair to say he’s become interested in them in recent years.
It will be interesting to see what Mr. Trump has to say at the annual Bitcoin conference this week in Nashville.
A group of wealthy potential donors might be told what they want to hear.
As for the other part of the opening rhetorical question, it’s a bit early to tell, but anything less than a significant improvement in the Democratic polls before November won’t change things much.
