November is a long way out, but let’s start to answer client questions about a second term.
What you’re not hearing about who the market is voting for, and why
Wednesday, October 30, 2024
As Trump’s probability of winning the election has risen, fallen and risen again – markets have changed their assessments of economic growth.
Update to Strategic View
Since June, Trump’s probability of election rose with the revealed infirmity of Biden and the assassination attempt. It fell when Harris was nominated. It has risen again as her campaign has faltered. Stocks have generally risen and fallen with Trump’s probabilities, pointing to higher growth expectations under Trump. The 10-year Treasury yield has risen and fallen with Trump, too. A Wall Street narrative holds that this is because Trump’s fiscal policies, especially with tax rates, will be looser, driving higher issuance demands. But Trump’s fiscal track record as president is more conservative than Biden’s. And increased issuance has historically been negatively correlated with yields. The 2017 tax cuts are producing more revenue than the former higher rates would have, so extending expiring provisions would ultimately be fiscally more sound. The 2-year Treasury yield, a proxy for Fed policy rates, fell when Trump’s probability of winning was rising in June and July, and the Wall Street narrative holds that this is because Trump will browbeat the Fed into lower rates. But the 2-year yield continued to fall during the period of Harris’s ascendancy, and has now risen as Trump’s revival has unfolded. Both the 10-year and the 2-year appear to corroborate the stock market – growth expectations are higher under Trump than Harris.