Market Remains Calm After Trump Assassination Attempt: Why Are Investors Staying Cool?Early Monday morning in Asia, markets remained calm, with US stock futures slightly up, the US dollar index rising marginally, and Bitcoin breaking through the $60,000 mark, drawing market attention. This contradicts the general expectation of a dramatic market reaction to a "Trump assassination attempt"
Market Remains Calm After Trump Assassination Attempt: Why Are Investors Staying Cool?
Early Monday morning in Asia, markets remained calm, with US stock futures slightly up, the US dollar index rising marginally, and Bitcoin breaking through the $60,000 mark, drawing market attention. This contradicts the general expectation of a dramatic market reaction to a "Trump assassination attempt".
US President Trump was shot at during a campaign rally in Pennsylvania on Wednesday, local time. The incident quickly spread across the internet with pictures of Trump raising his fist with blood on his ear, adding fuel to the speculation about his chances of winning the election. Despite the incident, markets didn't react with the expected volatility and instead calmly digested the unfolding event.
Why are investors remaining indifferent to the "Trump assassination attempt"?
1. Market expectations for Trump's victory are already priced in:
Since March, the S&P 500 index has been positively correlated with the probability of Trump's victory. Investors generally believe that a Trump win would be beneficial for the stock market, as he might push for a new round of deregulation and extend corporate tax cuts, thereby boosting corporate earnings and economic growth.
Although betting markets have seen increased bets on Trump's victory, the overall trend is consistent with the situation after Biden's poor performance in the June 27 debate. This indicates that market expectations for a Trump victory are already priced in, and the incident hasn't brought fresh information, leading to a relatively calm market response.
2. Dovish expectations from the Fed are weighing on the dollar:
Recent signs of easing price pressure and weak US economic data are continuing to fuel dovish expectations for the Fed to cut interest rates, which is somewhat dragging down the dollar. Although Trump supports loose fiscal policies and raising tariffs, which could favor the dollar, the negative impact of the Fed's rate cut expectations has offset this advantage.
3. Bond investors are becoming more sensitive to US domestic political instability:
There is preliminary evidence that bond investors are becoming more sensitive to US domestic political instability. A trend of positive correlation between long-term US bond yields and US political risk is emerging, which could weaken the traditional safe-haven function of US Treasury bonds.
4. The market will return to rationality and focus on economic fundamentals:
Some analysts believe that the market will find a balance and return to the most important aspects from an investment perspective, namely economic growth, monetary and fiscal policies, and corporate earnings. In an uncertain political environment, investors are more inclined to focus on these fundamental factors and make rational investment decisions.
Analysis of the impact of the Trump assassination attempt on the market:
1. Impact on US stocks:
Keith Lerner, chief strategist at Truist, states that the S&P 500 has been positively correlated with the probability of Trump's victory since March. Investors believe that a Trump win would be beneficial for the stock market, as he might push for a new round of deregulation and extend corporate tax cuts.
However, the uncertainty brought by the Trump assassination attempt could exacerbate market volatility, especially if the investigation results point to a political conspiracy or trigger social unrest. Therefore, the US stock market could experience some negative impact in the short term.
2. Impact on the dollar:
Trump supports loose fiscal policies and raising tariffs, which could favor the dollar. However, the negative impact of the Fed's rate cut expectations and the uncertainty brought by the incident could offset this advantage. In the near term, the dollar could see fluctuations.
3. Impact on bonds:
A trend of positive correlation between long-term US bond yields and US political risk is emerging, potentially weakening the traditional safe-haven function of US Treasury bonds. The Trump assassination attempt could intensify market concerns about US political risk, leading to higher long-term US bond yields.
4. Impact on Bitcoin:
Bitcoin's rise has been seen as a sign that the market is considering Trump's chances of winning. In the short term, the Trump assassination attempt could trigger a safe-haven demand for cryptocurrencies, thereby pushing Bitcoin prices further up.
5. Impact on other assets:
The Trump assassination attempt could lead to price fluctuations in other assets, such as gold, oil, etc. Investors might adjust their positions based on the event's development and their outlook on the future economic scenario.
Behind the calm market response lies a rational and cautious investor attitude:
Despite the widespread attention garnered by the Trump assassination attempt, the calm market reaction stems not from indifference to the incident itself, but from investors rationally analyzing and cautiously evaluating the potential impact.
First, market expectations for Trump's victory are already priced in, and the incident doesn't provide new information.
Second, the Fed's dovish expectations for rate cuts have weighed on the dollar, offsetting the positive impact of Trump's policies.
Third, bond investors are becoming increasingly sensitive to US domestic political instability, but the market hasn't exhibited panic.
Fourth, the market is returning to rationality, focusing on economic fundamentals and making rational investment decisions.
As the event unfolds, the market will continue to digest the impact and make adjustments accordingly. Investors need to closely monitor developments and make informed investment decisions based on their investment objectives and risk tolerance.
Furthermore, it's essential to pay attention to the following aspects:
1. Progress of the investigation: The investigation results will significantly impact market sentiment. If the findings point to a political conspiracy or trigger social unrest, the market could experience more pronounced fluctuations.
2. Market interpretation of the event: The market's interpretation of the event will determine the intensity of its reaction. If the market views the incident as having minimal impact on the election outcome, the market volatility might be relatively calm.
3. Changes in economic fundamentals: The event could influence economic fundamentals, such as a decline in consumer confidence, a decrease in business investment, etc. These factors will determine the market's long-term trajectory.
4. Policy changes: The event could prompt the government to introduce new policy measures, such as strengthened security measures, adjustments to the campaign, etc. Such policy changes will have varying levels of impact on the market.
In conclusion, the impact of the Trump assassination attempt on the market is complex and might lead to short-term market volatility. However, the long-term impact still requires observation of the event's development and the market response.
Investors should maintain rational investment practices, closely monitor the event's progress, and ensure robust risk control.
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