With just two weeks to go until the presidential election, traders, including some of Wall Street’s legends, seem to be placing bets with a Trump victory in mind. A looming theme in investor’s minds over the past few months has been the differences in fiscal policy between the two presidential candidates, and the effects these policies will have on markets.
It now appears that many Wall Street investors are betting on a “red wave” in November, with major political power falling into the hands of Trump and the republicans. Anshul Gupta of Barclays wrote, “Trump trades have continued to gain favor as markets have put their faith firmly behind the rising odds of a Trump win, even as polls still suggest a tight race,” This shift has been seen in the rising 10-year treasury yield as investors are betting against U.S. treasuries. A Trump victory would be very good for equities but would add pressure to treasuries, driving yields higher.
Paul Tudor Jones, one of Wall Street’s all-time legendary traders, went on CNBC’s SquawkBox and said that he is orienting his portfolio towards a Trump victory in November. He is extremely bearish on bonds overall as he thinks that no matter the outcome of next month’s elections, long-term yields are going to suffer. While on the show Jones said, “We’re going to be broke really quickly unless we get serious about dealing with our spending issues..the treasury market won’t tolerate it.” Jones’ views revolve around the fact that both candidates have made some rather outlandish claims regarding their plans for taxes and government spending. Jones isn’t the only Wall Street legend who feels this way, Stanley Druckenmiller, founder of Duquesne Capital, stated that he is shorting bonds because of the government’s “fiscal recklessness”. Druckenmiller thinks this inefficient spending will continue no matter the outcome of the election. Druckenmiller also sees a market trend of people betting on a Trump victory, “the market and the inside of the market is very convinced Trump is going to win. You can see it in the bank stocks, you can see it in crypto, you can even see it in Trump Media & Technology Group Corp., his social-media company.”
It appears that investors see both candidates' policies as bearish for bonds, Mike Cudzil, portfolio manager at PIMCO, wrote, “whoever wins the election, the biggest loser is the U.S. deficit.” Both of the candidates have shown in the past that they have no problem adding to the deficit, both administrations have been extremely loose with government spending. Neither candidate seems to have a clear plan for reducing the deficit, despite putting forth plenty of plans for spending. Higher government spending leads to increased treasury supply which drives down prices and increases yields.
Trump’s policies would be better for corporations and equity markets as he plans to cut corporate taxes and nationwide taxes. Investors believe his policies will increase domestic manufacturing and spending on infrastructure. Harris’s plans for corporate tax policies are quite the opposite, she plans on imposing higher taxes on corporations, which will not bode well for capital markets. The question then becomes, does Trump really have a higher probability of winning, or do investors just want him to win because his policies would be better for markets? The betting markets, such as Polymarket, have seen increasing odds of a Trump and republican victory in November, but do these betting sources really indicate anything substantial? Paul Tudor Jones said, “So I don’t know if I necessarily believe the betting markets, but I don’t have any great insights,”
Trades investors are making don’t have any impact on the outcome of the election, they do however indicate confidence among these investors as they are willing to put money down on their convictions. Either way, the policies and plans put forth by each candidate will be tough on treasuries, driving yields higher.
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