What is ‘Trump Trade’ And How Does It Impact Crypto Investors?
YEREVAN (CoinChapter.com) — Donald Trump is preparing to accept the Republican Party’s nomination for president for the third time. His recent surge in poll numbers, diminishing legal troubles, and sympathy from an assassination attempt have boosted his momentum. This political shift has reawakened the “Trump trade,” prompting investors to adjust their portfolios in anticipation of a potential Trump victory.
Market Reactions and Investor Behavior Under Trump’s Policies
“Trump Trade” refers to the market shifts and investor behaviors in response to the economic policies and political actions associated with a potential Trump presidency. This term emerged after his election in November 2016, as markets reacted to his promises of deregulation, tax cuts, and increased infrastructure spending, reflecting expectations of a pro-business environment.
During Trump’s first term, U.S. stocks, particularly in tech and financial sectors, surged alongside rising Treasury yields and a strong dollar. As the upcoming presidential election approaches, Trump leads in many polls, and recent events, including the presidential debate and an assassination attempt on July 13, have heightened investor anticipation.
Understanding the growing popularity of the Trump Trade concept requires looking at market behavior during Trump’s previous presidency and its potential implications this time around.
Stock Market Gains During Trump Trade and the Impact of Recent Events
During Trump’s term, U.S. stocks, particularly in tech, financials, industrials, and energy, saw significant gains. The Tax Cuts and Jobs Act of 2017, which reduced corporate tax rates, greatly benefited tech companies, leading to increased investments, stock buybacks, and dividends. The S&P 500 rose nearly 50% from Trump’s election until the start of the COVID-19 pandemic.
Stock markets generally respond more to earnings forecasts and economic fundamentals than to political news. So far, the presidential race between Trump and President Joe Biden hasn’t significantly influenced the stock market. The recent uptrend is driven by robust corporate earnings, particularly from companies within the S&P 500, which is experiencing its most substantial earnings growth in years.
One notable exception is Trump Media. Shares of Trump Media and Technology Group (DJT), the parent company of Truth Social, surged over 30% on Monday, just two days after an assassination attempt on Trump. This significant rally highlights the potential impact of political events on specific stocks.
Trump Policies: Winners and Losers in Various Sectors
Trump Trade could also favor banks, healthcare companies, prison operators, and energy firms. Health insurers like UnitedHealth Group and Humana could benefit from deregulation. Trump’s support for oil companies and fossil-fuel automakers is expected to boost these sectors. Private prison stocks, such as GEO Group, have already risen due to his tough stance on immigration. Gun stocks, including Smith & Wesson and Sturm Ruger, might also benefit.
However, not all sectors are poised to gain. The Mexican peso and Chinese yuan could suffer due to potential tariffs and a stronger dollar. Electric vehicle manufacturers and renewable energy companies might face challenges if Trump rolls back green subsidies. Companies with high revenue exposure to China, such as Nvidia, Broadcom, and Qualcomm, could experience disruptions if trade tensions escalate. Additionally, Trump has criticized tech giants like Meta, Google-parent Alphabet, and Snap, promising stricter regulations on their platforms.
Dollar Strengthens Amid Political Events
The dollar has shown signs of market adjustment, initially strengthening after Trump’s debate performance and the assassination attempt. However, the DXY chart for July 2024 indicates a general downward trend, suggesting overall weakening of the dollar during this period. There was a slight recovery after July 17, reflecting market reactions to recent events
Trump’s proposals to cut taxes and impose tariffs could drive inflation higher. According to Goldman Sachs’ chief economist, Jan Hatzius, these policies might force the Federal Reserve to raise rates more frequently. Trump’s running mate, Senator JD Vance, supports devaluing the dollar to boost American exports, further influencing currency markets.
US Treasuries Market Shifts Amid Political Events: Steepener Trade Gains Momentum
The US Treasuries market has also reacted to recent political events. Investors are buying shorter-maturity notes and selling longer-term ones. This strategy, known as the steepener trade, is used to hedge against higher inflation. Wall Street strategists from Morgan Stanley and Barclays are promoting this approach. In early July, the 10-year yield rose by about 13 basis points relative to the 2-year rate, marking significant curve steepening. The Fed may need to cut the target interest rate to sustain this trend.
Crypto Market Reacts to Trump: Bitcoin, Ethereum, and Solana Surge Amid Political Events
Cryptocurrencies have responded positively to Trump’s political momentum. Unlike the Biden administration, Trump positions himself as friendly to crypto, aiming to attract undecided voters. Bitcoin surged after the debate and the assassination attempt.
After the assassination attempt on Trump, Ethereum‘s price experienced a significant rise. On July 15, ETH began to increase, continuing its upward trend and reaching $3,474.27 by July 18.
Solana (SOL) saw a significant price increase. Starting from around $142.71 on July 14, SOL’s value climbed steadily, reaching $160.74 by July 18
Key crypto-related stocks to watch include Coinbase Global, Marathon Digital, Riot Platforms, Cleanspark, MicroStrategy, and Cipher Mining. The Bitwise Crypto Industry Innovators ETF is also on investors’ radar.
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