Looking back at 2016: If Trump wins, how will the financial market react?
VNSMART- After the final debate of the US presidential election ended last week, we have analyzed that although Biden is still leading the polls, traders had better not be too complacent about this.
After fully realizing the importance of hedging the risk of the general election, we can't help thinking about how the financial assets including the stock market, U.S. dollar, gold etc. will react if the 2016 scenario recurs and Trump “counters” again?
JPMorgan Chase believes that the easiest way is to review the trends of various asset classes before and after the 2016 election.
In terms of US stocks and global stocks, from the market's reaction in 2016, US stocks are more popular than global stocks.Considering that the current odds and polls are the same as last time, showing that Trump's victory will be an accident, so there is reason to believe that if Trump wins unexpectedly again, US stocks will perform better than global stock markets.
According to JPMorgan Chase’s prediction, Trump’s victory will be the most favorable scenario for US stocks, and the S&P 500 index is expected to hit 3,900 points before the end of the year.On Tuesday, the benchmark stock index closed at 3390.68 points. JPMorgan Chase still predicts that the probability-weighted target price of the S&P 500 index is 3,600 points.
Specific to the sector, the sectors with the largest gains in 2016 include finance and industry, whether it is the US or non-US markets. As far as the financial industry is concerned, if Trump wins unexpectedly, it means that the prospect of tightening regulations may fade. Energy stocks will also be the main beneficiaries of Trump's smooth victory. In fact, financial stocks and energy stocks, also known as "deep value stocks," may experience large-scale short-squeezing.
In contrast, consumer staples and technology stocks underperformed the broader market four years ago.
The interest rate market
After Trump won the election in 2016, the market began to price a large-scale tax cut plan supported by the fiscal deficit, which pushed the 10-year U.S. Treasury yield to rise sharply; But this time, considering the “blue wave” scenario of the Democratic Party, the prospect of large-scale fiscal stimulus measures will have a greater impact on yields and curves (although changes in its tax policy may increase certain uncertainty), therefore, in the case of Trump's victory, JP Morgan Chase predicts that although the 10-year U.S. Treasury yield will also face upward pressure and the yield curve will further steepen, the magnitude is expected to be less than that of 2016.
The following figure shows the gold trend before and after the 2016 election. After Trump won the election, the price of gold fell sharply, but the background at the time should also be considered: within a month after the election, the market began to price tax cuts and the commitments related to infrastructure investment before the Trump campaign. The U.S. Treasury yield curve deepened sharply, and the actual yield of the 10-year U.S. Treasury rose by more than 30 basis points. Therefore, in line with the logic that the aforementioned increase in the rate of return is not expected to be as good as 2016, the decline in the price of gold may be equally limited.
In addition, among industrial metals, copper prices rose sharply after the 2016 general election results were announced, as the market priced infrastructure investment prospects.In this election, infrastructure investment was more prominent in Biden's campaign promises, but not in Trump's campaign.In other words, if Trump wins, copper's rebound is less likely.
Foreign exchange market
As the global economy gradually recovered from the sharp contraction in the first half of the year, the U.S. dollar gradually gave up its March gains and returned to levels close to the beginning of the year.JPMorgan Chase believes that although the counterattack of the epidemic in Europe and the United States and its impact on the economy are still the key to affecting the medium-term trend of the US dollar, if Trump wins, the market may revalue the uncertainty in trade, which is the same as 2016. Similar situation. At that time, both the euro and the yen fell against the dollar.
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