It finally seems like markets may be shifting away from Geopolitics to politics with just 16 days to until the most important Presidential election of our lifetimes (Again- It seems like that rhetoric has been "trotted out" consistently for nearly the last 10 years.)
I am not going to devolve into political opinion on this platform as I think we all know that has become a "no-go" area in American discourse. (I am an American citizen FWIW)
However, it does feel like the "Trump" trades for want of a better word have started to gain traction. Below I give a few brief thoughts on that.
In this respect I will give one small opinion. I think we need to watch for the "Brexit effect" here. Many will remember that going into the Brexit vote in the UK the considered opinion was that the UK would vote to stay in the EU and to be a "Brexiter" was not a very popular stance in a lot of circles. That gave life to the "Brexit deflector" who would either not tell you how they would vote or maybe even say they would vote to stay- when in fact they intended the very opposite.
In this election I think there is a danger of the same thing happening when it comes to a portion of Trump voters. So, my gut feel is that if Kamala is not showing a clear lead going into the election in the important swing states (3-5 percentage points to pick a number) - Arizona (11 electoral votes), Georgia (16 electoral votes), Michigan (15 electoral votes), Nevada (6 electoral votes), North Carolina (16 electoral votes), Pennsylvania (19 electoral votes- possibly most important) and Wisconsin (10 electoral votes) then she will not win
At this point the market is now clearly moving towards the "Trump trades"
The Equity market is trading very differently from both 2016 and 2020 and in fact the bottoming out process and turn took place on August 5th - The same day that Kamala was confirmed as the democratic candidate. In 2016 and 2020 the equity market was falling into the election and bottomed out just ahead of the vote. Present price action suggests that we may continue to rally into the election. If, however, we are at or close to the highs leading into election day it might be worth taking the buy the rumour sell the fact scenario and getting to the sidelines.
Bitcoin and Gold are surging. While Bitcoin looks to be a clear "Trump trade" Gold looks like it can continue to benefit from the total lack of fiscal responsibility that is evident on both sides of the Aisle. Bitcoin may do so also but for now I think it trades on the belief that a Trump administration is more Bitcoin friendly
The USD Index (DXY) rallied low to high about 3.7% since end Sept. That is also considered a bit of a Trump trade (MXN being a classic example when we talk tariffs) but that has also been an interest rate trade and is not as clearly a political trade overall.
Commodities: While the Bloomberg Commodity index has fallen in recent days it has rallied a lot since Aug-Sept lows. This may be partially a Trump trade view (increased stimulus/growth etc.) but was likely also on the back of the Chinese stimulus announced (which is already losing some of its luster). However, as I mentioned in my piece titled This could be a big deal on 18th Oct (https://shoe-fitz.rjobrien.com/this-could-be-a-big-deal) the medium-term technical picture here looks compellingly bullish.
What about rates. The steepening curve trade is a compelling "Trump trade" but is it a bull steepener or a bear steepener? Everybody seems to think bear steepener but I still think we will see two more 25 bp cuts from the Fed this year and that the employment picture is still not as rosy and the "fantasy" numbers in the Household survey suggest (Govt. jobs at +785k in last print).
I think we need to watch this important 4.12% to 4.13% level on the US 2-year yield for short-term guidance here. We still trade close to the 2007 analog here, but we are at a pivotal point that could see that further confirmed or break down.
So bottom line I think the "clearest trades" (famous last words) leading into the election seem to be long Gold and Bitcoin, Long Equities and curve steepeners while I think the yield directional trade and hence the USD trade are for now more nuanced.