Trump's Improving Odds Tied to Dip in TLT, TAN
The former president was widely seen as having a better performance in the debate than Biden.
Investors are trying to assess the political landscape following last week’s presidential debates. Observers from across the political spectrum panned President Biden’s performance, which POLITICO contributor Jeff Greenfield called “the worst debate performance in American history.”
While a lot of time remains until the November elections, the likelihood of a Trump victory edged higher after the debate.
For markets as a whole, the shifting odds had little impact.
On Friday, the S&P 500 fluctuated near record highs, continuing to show the same resiliency it has all year.
Under the surface, there was a little more action. The Invesco Solar ETF (TAN) plummeted by nearly 5%, while the Energy Select Sector SPDR Fund (XLE) rose by 0.5% midday Friday as investors attempted to price in the potential for a more fossil-fuel-friendly administration.
Meanwhile, the iShares 30+ Year Treasury Bond ETF (TLT) dropped 1.3% as the yield on the 30-year Treasury bond spiked 8 basis points to 4.5%.
In contrast, the iShares 1-3 Year Treasury Bond ETF (SHY) and the 2-year Treasury yield were little changed.
Inflationary Monetary Policy
If elected, Trump has indicated that he would like more sway over monetary policy, with the aim of keeping interest rates lower than they might otherwise be.
According to some economists, that could push inflation higher, which would be bearish for bonds.
Another category that would be greatly affected by a Trump presidency are China and Europe ETFs. Trump started a trade war with China, and to a lesser extent, Europe, during his first term, and all indications are that he will double down on that policy in his second term, with across-the-board tariff increases.
However, there was little movement in either the iShares MSCI China ETF (MCHI) or the iShares MSCI Eurozone ETF (EZU) on Friday, suggesting that this isn’t a risk that investors are ready to worry about.
