A dark day in U.S. history provided a test for financial markets on Sunday night as investors reacted to an apparent assassination attempt on former President Donald Trump. Despite the gravity of the event, the market’s initial response was subdued, with U.S. stock index futures trading flat to slightly higher.
Market Stability Amid Political Shock
The attempted shooting at a Pennsylvania campaign rally on Saturday has not sparked a flight to typical safe-haven investments like Treasurys and gold. Instead, investors appear to be focusing on how this incident might influence the presidential race between Trump and President Joe Biden. According to Keith Lerner, co-chief investing officer and chief strategist at Truist, the event is unlikely to have a dramatic near-term impact on the markets. “This is a horrific event. From purely a market perspective, we don’t view this event as having a dramatic near-term impact,” Lerner told MarketWatch.
While betting markets saw increased wagers on a Trump victory, the overall movement was similar to the market reaction following Biden’s poor debate performance on June 27. The S&P 500’s performance since March has shown a positive correlation with Trump’s prospects in prediction markets and polling. This relationship seems driven more by the desire for a clear outcome than by specific policy proposals. Before March, the stock market’s performance was positively correlated with Biden’s chances of victory.
Bitcoin and Bonds in Focus
A slight uptick in Bitcoin (BTCUSD), which trades around the clock, suggested that markets might factor in stronger prospects for a Trump victory. Bob Elliott, chief investment officer at Unlimited Funds, noted that this scenario favors stocks, Bitcoin, and the U.S. dollar relative to bonds and other havens. Investors believe a Trump victory could be bullish for the stock market due to potential deregulation and corporate tax cuts. Conversely, increased prospects of a Republican sweep could weaken the bond market, as seen when Treasury yields spiked following the June debate.
Although neither candidate is expected to tackle the growing U.S. debt directly, the potential for a second Trump administration to introduce tax cuts, tariffs, and other measures has become a focal point for bond investors. Mark Rosenberg, co-head and founder of GeoQuant, highlighted the potential for Treasury yields to jump if Trump’s probability of winning increases. However, he also noted that bond investors are becoming more sensitive to domestic political turmoil, which could impact the traditional flight-to-safety demand for Treasurys.
Historical Precedents and Future Market Drivers
Investors have little precedent for such an event, but some draw parallels to the attempted assassination of President Ronald Reagan in March 1981. Stocks fell after news of the attempt, with the New York Stock Exchange closing early. Treasury yields initially jumped in a flight to quality, and the U.S. dollar strengthened. Andreas Steno of Copenhagen-based Steno Research suggested a similar trend might occur now, assuming the event impacts the market.
As the Republican convention approaches, the attempted assassination is likely to amplify attention on the event. However, Truist’s Lerner emphasized that the more significant near-term market drivers would continue to be economic growth, inflation, and corporate earnings trends. “The Republican convention was already going to come into the spotlight this week, and this will amplify that attention. That said, the actual election is still almost four months away, and a lot can happen between now and then,” Lerner noted.
In 2024, stocks have rallied, typical in presidential election years, with the S&P 500 gaining nearly 18% year-to-date, led by megacap tech stocks. The Dow Jones Industrial Average has trailed, up 6.1% year-to-date. Investors are advised to stay focused on fundamental economic factors while keeping an eye on the evolving political landscape.
