From Dollar to Stocks, Trump Trade Erupts Across Markets

Donald Trump quickly put his stamp on financial markets as his march toward victory in the US presidential election propelled “Trump Trade” plays across assets.

(Bloomberg) — Donald Trump quickly put his stamp on financial markets as his march toward victory in the US presidential election propelled “Trump Trade” plays across assets. 

US stocks surged, with S&P futures climbing 2.3%; the dollar posted its biggest gain against major currencies since 2020; Treasury bonds tumbled, sending benchmark yields up more than 0.1 percentage point; and Bitcoin soared to a record.

All the votes aren’t in yet, but the swings send a clear signal that investors believe a second Trump administration is on its way and will look a lot like the first one: a stream of policies (tax cuts, deregulation, tariffs) that will simultaneously stoke economic growth, corporate profits and inflation. 

For those on Wall Street who’ve been riding the Trump Trade, and especially those who held their nerve as it wobbled on the eve of polling, it was a moment of vindication.

“If you had the Trump trade on for the last six weeks, it’s been outstanding,” said Ed Al-Hussainy, a rates strategist at Columbia Threadneedle Investment. “The question is these winning runs don’t last forever and is this a good time to take profits.”

While the message from investors is broadly positive, there is also a stern warning in the market gyrations.

The surge in Treasury yields underscores concerns that Trump’s policies will swell an already bloated budget deficit and reignite an inflation spiral that the Federal Reserve was only just finally quelling in the wake of the pandemic. 

The 10-year breakeven rate, a market gauge of where long-term inflation is heading, surged to its highest levels since April. In the parlance of Wall Street, this is the bond vigilantes exerting pressure on leaders in Washington to keep spending in check. 

“Vigilantes are in full control. Panic is starting to set in, the coiling we expected is happening,” said NatAlliance Securities’ Andrew Brenner.

A key outstanding question for markets is whether Republicans end up with the “trifecta,” meaning a situation where they gain control of the Senate, the House and the White House. Beyond that, it remains to be seen whether Trump would actually deliver his campaign-trail promises.  

“Now the risk is to see if President Trump will be different from Candidate Trump,” said Luca Paolini, chief strategist at Pictet Asset Management. “We have to be very careful because, with markets at an all-time high, and Trump’s agenda being potentially very disrupting for some sectors, we have just to wait.”

Heading into the vote, fund managers remained all-in on stocks even after gains of 23% in the S&P 500 already in 2024, poised for the best election-year return in nine decades. 

With October’s record-high for the S&P 500 now in sight, sectors viewed by analysts as likely to benefit under Trump advanced. Fossil-fuel energy companies, banks, pharmaceutical providers, prison managers and smaller capitalization companies all rose in early trading. Those seen as struggling under a Trump administration, including renewable energy stocks, declined.

“The biggest winners will be sectors and industries welcoming a more business-friendly regulatory environment,” said Stephen Dover, chief market strategist and head of the Franklin Templeton Institute. “At some point, however, rising bond yields may cap equity market gains.” 

Tesla Inc. climbed in as investors wagered the carmaker run by Trump-backer Elon Musk will gain from his candidate’s success. Trump’s own media company jumped as much as 62%. 

In currency markets, the dollar reached its strongest in a year before paring the move. While Trump has advocated for a weaker exchange rate, investors reckon his policies will fan inflation and slow the pace of the Fed’s interest-rate cuts, thereby boosting the greenback. The tariffs he’s hailed would also likely hurt foreign economies more than the US. 

The Mexican peso, the currency viewed most vulnerable to Trump’s trade platform, fell the most in three months, while the Chinese yuan weakened the most in two years. The yen and euro also declined. 

Ukraine’s dollar-denominated sovereign bonds advanced given Trump’s pledge to accelerate an end to the war with Russia.

The dollar’s surge put commodities under pressure with oil, copper and gold all falling. Soybeans slid the most in a month on concern of fresh trade tensions with China, the biggest buyer.

One of the largest gainers was Bitcoin, which rose more than 8%, adding to a surge in recent weeks as Trump embraced digital assets.

Markets must now decide if the post-election moves can extend. 

“I expect to see some profit taking on the Trump trade, and bottom feeders on the other side,” said Columbia Threadneedle’s Al-Hussainy. “How much that balances out in the market is too early to say.”

—With assistance from Joel Leon and Andras Gergely.

(Adds additional context, comment throughout.)