Bitcoin is soaring, the Mexican peso is falling, and bond yields are also rising. There is indeed some evidence suggesting that market participants have begun to factor in the likelihood of Trump winning before the U.S. presidential election.
But U.S. stocks may not be so — at least not with such a big change.
Morgan Stanley's Chief U.S. Equity Strategist Mike Wilson studied the performance of the equal-weighted S&P 500 since October 1. The financial sector is the best-performing industry, and the industrial sector is also one of the better-performing industries.
As part of the Trump trade, this somewhat makes sense — for example, the Washington Post reported that Republican candidate advisors considered demoting current Federal Reserve Vice Chair Quarles, which was seen as a signal that the government wishes to ease regulations. If tariffs reduce foreign competition, the industrial sector would logically benefit.
But Wilson pointed out that the gains in other sectors, apart from the financial sector, are not very large, and these sectors also benefit from a strong earnings season. Among the major industries, the financial sector has been the most surprising in terms of profits, and sales growth surprises ranked second.
He stated: 'In other words, in our view, fundamental factors have a greater impact on the financial sector and will continue to influence the sector more than the election results.'
He also noted that since October 1, materials stocks and small-cap stocks have performed slightly poorly.
Wilson stated that the Trump trade is more pronounced in the poor performance of tariff-sensitive consumer stocks and renewable energy stocks — and if Harris wins, these stocks may experience a catch-up trade.
Therefore, if the Trump trade has not yet been fully priced in by the market, will the relevant stocks rise if the Republicans win?
Wilson is skeptical about this, at least compared to 2016. At that time, the economy in commodities, manufacturing, and industrial sectors was recovering from a deep contraction, whereas now the economic cycle is more mature. Moreover, the market welcomed a reflation scenario in 2016, while the scars of inflation remain evident today.
He said: 'For consumers, inflation is not as much of a headwind as it is now, and the risk of rising term premiums in the bond market associated with deficit expansion is also not as significant as it is today.'
Article reposted from: Jin Shi Data