Trump was already ahead of Biden in opinion polls even before the latest weekend shooting incident in Pennsylvania. Nevertheless, the attempted assassination of Trump has boosted his chances of victory significantly, according to well-followed prediction market website, PredicIT, which is currently projecting a 67% chance of a victory for the former president compared to 60% before the shooting and 55% before the Trump-Biden debate on June 27.
Images of a defiant Trump with his fist raised and a bloody right ear are all over the social and mainstream media. His supporters see the images as a metaphor for the former president’s resilience. Sympathy votes could increase the odds of a Trump victory as more of his supporters may now feel the need to turnout at polling booths in November to vote for him.
This is an important factor because voter turnout matters in US Presidential elections. History is also in Trump’s favour as the last assassination attempt of a US President took place in March 1981, and it boosted then-President Ronald Regan’s opinion poll rating by 22 points.
The greater odds of a Trump victory after the weekend shooting could contribute to greater nervousness and market volatility in the short term. Adding to market nervousness will be the Republican National Convention being held in Milwaukee this week through to July 18. Trump is expected to be formally nominated as the presidential candidate for the Republican Party. This will not be a surprise.
However, what markets will be watching out for is what he will say at the convention, especially regarding the shooting and whether this will boost his chances of winning even further. Investors will also be watching nervously to see if he shares further insights on his policies if elected in November, and who he will pick as his Vice President.
Despite the possibility of short-term market volatility, investors should not let it spook them into inaction. This is because there are good reasons to remain hopeful about the prospects over the next two to three years. In the heat of a major election, it can be easy to lose sight of market fundamentals which is often a more important driver of performance. So, investing based on political expectations may not be the best approach.
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After Trump was perceived as the winner in his first debate with Biden on June 27, investors started entertaining more seriously the possibility of a Trump victory at the presidential elections in November. Interestingly, despite this, the S&P 500 index and global equities, as measured by the MSCI All Country Global Index, did not see any significant correction.
In fact, since the first debate, these indices have both appreciated by 2.4% and 3.1%, respectively. Post-debate, the US 10-year Treasury yield rose initially, from 4.28% to as high as 4.46% but fell quite sharply thereafter to 4.18% due to a soft patch of US economic data and a more dovish rhetoric from US Federal Reserve Chairman Jerome Powell.
Meanwhile, the US dollar index — instead of appreciating as some feared, has depreciated by 1.8%. Elsewhere, gold has appreciated significantly by 3.5% since the Trump-Biden debate on June 27.
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Contrary to what some may think, a Trump victory may not necessarily spell gloom and doom for markets. A great deal hinges as well on whether the Republican Party secures a clean sweep of Congress or if Congress remains divided as it is now. Also, whether the victory by either party in Congress is narrow or a wide one, matters as well.
Interestingly, during Trump’s previous presidency between 2017 and 2020, the S&P500 index rallied nearly 70%. So, while geopolitics can be an important driver of markets, it is not the only driver. Geopolitics can cause short-term market volatility, but eventually, economic and earning fundamentals and liquidity may matter more, and these factors are still favourable for the medium-term investment outlook.
Also, Trump often refers to the strong stock market as a testament to his performance during his past presidency. So, he may not pursue the drastic path if he takes office (he may not do everything he says he will do during the campaign trail), or he may backtrack or perhaps water down some of the draconian measures he suggested in his campaign. This is especially so if the stock market tanks because of his actions — as it will mean getting a bad report card, and this is probably not something Trump will be happy about.
Bear in mind as well that the US political system, with a very long history, should not be underestimated as it is designed to be inherently stable. Even if the Republicans take full control of the presidency and US Congress, they may not be able to overhaul the entire systems. There is still a third branch of the US federal government they will need to contend with — the US judiciary — which can intervene if necessary.
In a nutshell, there is no need for investors to panic despite the greater odds of a Trump presidency after the latest shooting. It will probably add another layer of uncertainty to the investment landscape, but it may not derail markets in the medium term.
Vasu Menon is managing director, investment strategy at OCBC
