After the Trump-Trump incident led to a sharp rise in expectations of his victory in the US presidential election, the "Trump trade" that followed is stirring up the US market. The so-called "Trump trade" refers to the trading actions taken by investors to bet on Trump's victory in the US presidential election and predict the future market trend based on this. The current consensus among market investors is that Trump will further relax market supervision and strengthen trade protectionism in his second term. From the perspective of the stock market, Trump's policy tendencies are beneficial to bank stocks, energy stocks, and healthcare stocks; in the bond market, investors are worried about the continued high inflation in the United States and the rise in long-term Treasury yields; in the field of cryptocurrency, due to the frequent goodwill of Trump and his deputy Vance, the expectation of US dollar depreciation has risen, and investors regard it as a tool to fight inflation and currency depreciation.
Trump impressed people with his massive tax cuts and fiscal stimulus policies during his last term. However, the market's excessive bets on Trump's policies may not be in line with the actual situation. Politicians' pre-election promises and policy proposals to the public are largely forced to take extreme routes in order to attract voters' attention. We can find similar evidence in Argentina's Milley, the British Labour Party, and European far-right parties. As Trump's approval rating increases, the actual policy agenda tends to become moderate and moderate in order to gain the support of more centrist voters. In short, Trump's coming to power does not mean that he will be more profligate than Biden. Although deficit spending will continue, many people think Trump's behavior is too crazy. Trump himself and his economic team will not allow inflation to get out of control. Excessive inflation will not only erode consumer purchasing power, but also cause turmoil in financial markets. Continuing Biden's economics will only add fuel to the fire of inflation. In fact, the smartest and most intuitive Treasury market has performed mediocrely, and yields have not increased significantly, which indirectly confirms the current#风险资产 Pricing is on the high side.
Given the inflation and non-farm data over the past month, traders have almost completed pricing for a 100% rate cut in September, and have spread this trend to other risky assets besides technology large-cap stocks. Before the Fed meeting at the end of July, no one knew whether the macro data would have an absolute lethal effect on the Fed's rate cut decision, especially the crazy rise of the Russell Index, which actually lacks the performance support of MA7. Once this expectation cannot be fulfilled, the most sensitive risk assets will be the most seriously injured.
On the other hand, since the financial crisis in 2008, the Fed's interest rate cuts and quantitative easing (QE) have become the norm, and the zero interest rate + unlimited QE in 2020 has made the market full of expectations for future easing policies. Although the market has high expectations that the Fed may release money on a large scale again after the interest rate cut, looking back at the four QEs since 2008, only QE4 in 2020 is unlimited, and the other times (QE1 in 2008, QE2 in 2010, and QE3 in 2012) are all capped. In his recent speech, Fed Chairman Powell mentioned the upward shift of the neutral interest rate, which means that even if the interest rate is cut, the Fed will not immediately expand its balance sheet on a large scale. If the economy is only slightly weaker rather than in a severe recession, the Fed may adopt a capped QE5. In the next one or two years, even if the Fed cuts interest rates several times, it may be the norm for interest rates to drop to around 3% and maintain limited QE. In this limited easing scenario, the performance of various assets will be different. The market may show a differentiated and structured state, and the market breadth will also expand from extremely concentrated to a small number of certain and growth targets.