What if Trump win again?


Biden is leading almost all the polls in US elections and almost all are talking about the 'blue wave'. It is almost futile to predict the elections specially given what happened in 2016 elections where most polls predicted Clinton to win against Trump. But over the past few months, market has gone from Trump is 'easily winning this election' to thinking that Biden has 'all the aces covered'. As we are approaching the final stretch, doubt amid market participants is rising as money is rushing towards the sidelines.

Trump winning again is still not out of the question and anybody who has seen Netflix documentary - 'The Great Hack' would tell you that elections can be influenced in all sort of funny ways in the last few weeks leading up to the election. It is almost certain that whatever is the result, doubts will be cast upon the voting process and Trump will most certainly dispute the election if ends up on loosing side. As investors, the volatility in in interim need to be endured and we need to be prepared for all outcomes and eventualities.

So what happened in the markets in 2016 post elections? 

In the immediate aftermath, we saw melt up in Dollar, USD JPY moved from 101.20 to 118 in a matter of one month along with EUR USD moving from 1.13 to 1.03. Stock market slumped for few hours before staging one of the biggest bull market rally of the last decade. EM currencies fell sharply for a month before staging a recovery over next few months.

The kneejerk reaction to a Trump win could again be the same given the geopolitical uncertainty he brings and also because market is record short dollar positions. But eventually equities market will rally again as Trump remains an eternal Dow-man and Biden tax increases can be safely negated. If Republicans hold the Senate, that will add to the optimism in stocks as stimulus hopes would be renewed as well.

However, the real trade according to me would be to fade any dollar euphoria on a Trump victory. As the global economic recovery continues to encounter more setbacks and the Fed not going to even consider hiking rates in the next 4 years possibly, fiscal and monetary support is here to stay for a long time. Ultimately with rising virus cases and negative economic developments, Fed won't budge, Reflation trade narrative likely to continue with EM seeing more inflows. Gold and Cryptos could likely be the outside winners!


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