October 28, 2024 • 14 mins
With the US presidential election just over a week away, most major polls, including the latest Bloomberg/Morning Consult poll, show Vice President Harris and former President Trump in a dead heat. But Wall Street seems increasingly convinced Trump is going to win. And that is manifesting in what's come to be called “The Trump Trade.”
Today on the Big Take podcast, Bloomberg Opinion’s John Authers sits down with host David Gura to break down what the trade is, and what it reveals about how Wall Street sees this election and the future of the economy.
Read more: Prediction Markets Reflect That the Clock Favors Trump
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Episode Transcript
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Speaker 1 (00:03):
Bloomberg Audio Studios, podcasts, radio news. The election is only
about a week away, and while most major polls, including
the latest Bloomberg Morning Console poll, show Vice President Harris
and former President Trump are running neck and neck, Wall
Street has become increasingly convinced Trump is going to win,
(00:26):
and that conviction is manifesting itself in what's come to
be called the Trump.
Speaker 2 (00:30):
Trade, the Trump trade, as some have been calling it,
the so called Trump trade.
Speaker 1 (00:34):
We see those games from the Trump trades, who are
the winners and who are the loser? Investors are effectively
betting on a Trump win in the stock market, in
the bond market, in currencies, in crypto Bloomberg Opinions, John
Author says he's never seen anything like it. Wall Street
paying such close attention to a presidential election. He compared
to what's happening now to his first election he covered
(00:56):
in the US, that was Dole versus Clinton in nineteen
ninety seven.
Speaker 2 (01:00):
I actually spoke to somebody in one of the large
firms two days later who said, did Clinton win? And
wasn't embarrassing? Yes he did? I mean that there was
You couldn't tell anything about that election from prices before
it happened or after. This is so different from.
Speaker 1 (01:22):
That, it's hard to overstate John says how much things
have changed since then.
Speaker 2 (01:27):
It's a very interesting, difficult, flammable situation. The level of
interest is unusual, and it's pretty extreme.
Speaker 1 (01:40):
I'm David Gura, and this is the big take from
Bloomberg News today on the show, The Trump Trade and
what it tells us about how Wall Street sees this
election and the future of the economy. What is the
Trump trade? What exactly is Wall Street betting on? Okay,
(02:00):
Trump trade?
Speaker 2 (02:01):
Very broadly, it's positive, bullish on stocks and negative bearish
on bonds. At present, it seems to be predicated on
the belief that even though a Trump presidency will be
negative for bonds, it won't be so negative. It won't
push up yields so much that it derails the stock market.
(02:23):
So that's basically the Trump trade, a belief that Trump
is going to win and that what he does will
be expansionary and that it's also going to boost growth
and help the stock market.
Speaker 1 (02:35):
Could I ask you how people are playing this in
a few different outset classes as you mentioned Starks, Yes,
I would guess that there would be people who think oh,
this is going to be good for energy stocks, for instance,
or financials. Perhaps there'll be less regulation.
Speaker 2 (02:48):
Yeah, companies that are deemed to be very benefited by
logistics by globalization have a problem. If you were interested
in FedEx, for example, that's plainly doesn't do well when
Trump's numbers are seen to improve. But yes, overall a
Trump win is seen to be good for classic cyclical
(03:11):
companies and it's not so great for classic defensive, staple
type companies.
Speaker 1 (03:19):
How about in the bar market.
Speaker 2 (03:20):
Bond market generally there are two animating features here. One
is it's a cliche, but it is true that bond
markets prefer gridlock. When you have gridlock when one party
in Congress actors a check on the presidency, generally speaking,
the deficity is less likely to get out of control,
Supply is less likely to be too heavy, and so
(03:41):
that keeps yields lower. The assumption, which I think is
probably correct, is that if Trump pulls off the presidency,
the chances of overwhelmingly strong that he wins the Senate
as well, and probably also holds onto the House. So
if you have unified government, that's bad for bonds.
Speaker 1 (04:04):
John says fixed income investors like Most are not typically
motivated by ideology. They just want to make money, and
some are trying to bet on what a Trump presidency
might mean for inflation in both the short term and
the long term.
Speaker 2 (04:19):
It will absolutely, undoubtedly be terrible for inflation in the
short term. The total burden on the amount of tariff
that will be paid. This is Barclay's research. I'm going
from not anything to hyper liberal. The twenty eighteen tariffs
added about two percentage points onto the cost of the importans.
(04:41):
The tarfity is talking about now, if he really goes
through with it, will add seventeen percentage points. So this
is protectionism on a scale not seen since the Great Depression.
And if you are a company, you will pass that
on or pass as much of it as you can on,
because otherwise you're shareholders won't be very pleased with you.
(05:03):
So it is directly inflationary in the short term. I
don't see any arguments against that. If Donald Trump persuades
more production to come to the States, if he persuades
companies currently operating in China to move their production facilities here,
in the long term, that will definitely be good. But
(05:26):
it takes far longer to build a factory than it
does to raise a price, and so there is still
no way that you avoid an inflationary spike if he
really goes through with this, and that will be bad
for the bond market.
Speaker 1 (05:39):
Currency traders are also focusing on what former President Trump
has been saying about tariffs.
Speaker 2 (05:44):
The currency traders take it as an absolute given that,
particularly if he goes through with those tariffs, that it
will be very bullish for the dollar. If the Trump
proposals are accurate, that he's really going to try to
deter near suring as well and really try to force
people to bring production back to the US, this will
(06:06):
mean a very strong dollar. You then get into the issue,
as is so often the case, you need to start
thinking in terms of a chess player and what the
next moves will be. If, as is likely, you get
a startling strengthening of the dollar, which makes it that
much harder for US exporters, presumably the next response either
(06:28):
will be okay, maybe these tariff's answers to a great idea,
or what can we do to push the dollar lower? Now?
One possibility which is not particularly positive for the markets
is that we then have a President Trump trying to
impinge upon the Fed's independence to get rates down when
they would otherwise rise and weaken the dollar, which for
(06:52):
any number of reasons would really terrify people. The other possibility,
given that Trump at least put his name to a
book of the deal, is that you could try to
have a grand deal two weeken the dullo.
Speaker 1 (07:07):
That's happened before when Ronald Reagan was the president, But
the world has changed a lot since then, and John
says it would be hard for Trump to broke were
in agreement like that today. Coming up, how the Trump
trade has evolved, how it's playing out in prediction markets,
and what happens to the Trump trade when we find
out the outcome of the election. That's next. Another place
(07:37):
where you can see investors betting on a Trump win
is in the prediction markets. Today. They exist on sites
like Predicted and the Iowa Electronic Markets where people can
bet on the outcome of the election. But Bloomberg opinion
columnist John Authors says prediction markets have a long history.
Speaker 2 (07:54):
Prediction markets have been around for an extremely long time.
They used to be thriving prediction markets in papal conclaves
in the fifteenth and sixteenth century.
Speaker 1 (08:05):
Who's going to be the next pope?
Speaker 2 (08:07):
Who is going to be the next pope? Cardinals would
tell their attendants who was leading, and they would rush
out and put bets on it with the traders out
there on the streets of Rome, and the betting markets
could be surprisingly accurate, and the money that was involved
was multi millions in today's today's terms, because obviously in
(08:30):
Renaissance Rome, who is going to be the next pope?
Really about it, and there were prediction markets writing on
the floor of the New York Stock Exchange for many
decades at the beginning of the twentieth century.
Speaker 1 (08:43):
Today, another one of these prediction markets is called poly Market.
Speaker 2 (08:48):
It's a big and liquid market. Officially, Americans can't trade there,
which ought to be a very big red flag sign.
There can be some extra dispassion attitude that can come
from not actually being American.
Speaker 1 (09:03):
In recent days, a polymarket user who goes by Freddy
nine nine on the site has bet more than forty
five million dollars on a Republican victory. He's been identified
as a French national with extensive trading experience and the
financial services background, according to Polymarket, and John says one
thing that sets polymarket apart is that, unlike other prediction markets,
(09:26):
there is no limit on what you can bet.
Speaker 2 (09:28):
It's a more liquid market. You can also express your
conviction more easily because you can bet more. Polymarkets like
any markets, if somebody enters with a really big bait,
it will move, which is what's happened after Eaton Musk
told everybody, look at polymarketing, isn't it wonderful?
Speaker 1 (09:47):
John is talking about a post Musk made on x
in early October in which he praised prediction markets as
being quote more accurate than polls, as actual money is
on the line.
Speaker 2 (09:57):
The last time I checked, when we were recording this,
I think polyma market put the odds on Trump winning
at sixty two percent. That's more than a one in
three chance that Kamala Harris is the next president. According
to polymarket. You wouldn't bet your life on this. And
that's to some extent the point of where a prediction
market has its advantage. You see the price and then
you think, well, I do think Donald Trump is probably
(10:20):
going to win. But do I really know that the
Democrats don't have a better ground game they did last time?
Do I really know that the polls aren't just missing
lots of very motivated, angry young women who weren't voting
last time because of the abortion issue. Actually, no, I
don't know that. So am I really confident enough to
(10:40):
bet much more than that. No, Actually, we'll leave it
at only about a sixty percent chance. That is the
benefit of prediction markets that they do capture that, But
it's not the same. There's there are certainly people who
think that polymarket at sixty two percent for Trump means
they think Donald Trump will get sixty two percent of
the votes, which be an absolutely monstrous, historic landslide. No,
(11:04):
it doesn't mean that that isn't going to happen.
Speaker 1 (11:07):
I wonder what happens on election day. Say Trump wins,
what does that mean for people who have bet on
this Trump trade? If he loses, what does that mean.
Speaker 2 (11:15):
In terms of the bond markets. I imagine you would
see a big relief rally into bonds and you would
probably see some degree of a sell off in stocks
if you have a Kamala Harris presidency. If and I
think it's very unlikely, but if if somehow or other
John Tester wins in Montana or Ted Cruz loses in Texas,
(11:37):
which would make a lot of people in this country
extremely happy. But I still don't quite imagine it happening.
If somehow or other you get a clean sweep for
Kamala Harris rather than a checked Kamala Harris, then I
imagine the sell off in bonds would continue and the
stock market would probably not like that very much either.
(12:00):
I think the best outcome, probably for most asset classes,
is Kamela checked by the Senate. Possibly Camela checked by
the Senate and the House. That would not have any
great negative response. I don't think.
Speaker 1 (12:15):
How good is Wall streeted predicted the outcome of elections
if you look at.
Speaker 2 (12:18):
History, Oh, the number of times.
Speaker 1 (12:22):
As good as the cardinals.
Speaker 2 (12:24):
Yes, I mean the over history twenty sixteen, the polls
were wrong. Answer with the prediction markets. It was one
where for whatever reason, people just didn't catch what was happening.
Over history, the various prediction markets that were available were
better than the gallop pole over a series of elections,
(12:47):
So prediction markets generally are pretty good over history. The
number of examples of really big sell offs or booms
in response to an election result is pretty minimal, which
means that Wall Street is generally not surprised by the results,
twenty sixteen being the big, glaring exception to that. I
(13:11):
think one of the things that's very difficult is again
that you need to know about the chess moves ahead.
Like from what we know now, you can say various
things about Harris versus a Trump foreign policy, domestic policy,
but broadly speaking, it's not that obvious how different things
would be.
Speaker 1 (13:33):
This is the Big Take from Bloomberg News. I'm David Gura.
This episode was produced by David Fox. It was edited
by Caitlin Kenny and Sid Verma, and mixed by Alex Sagura.
It was fact checked by Adriana Tapia. Our senior producer
is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our
executive producer is Nicole Beemster Boor Sage Bauman is Bloomberg's
(13:54):
head of Podcasts. If you liked this episode, make sure
you subscribe and review The Big Take wherever you listen
to podcasts. It helps people find the show. Thanks for listening.
We'll be back tomorrow. Hey, everyone, Bloomberg wants to hear
(14:14):
from you. Help make shows like ours even better by
taking the Bloomberg Audience Survey and have a coffee on Bloomberg.
For doing it, visit YouTube dot com slash Bloomberg Podcasts
and click the link in our profile or community section.
To take the Bloomberg Survey, hosted by our partners Material,
go to YouTube dot com slash Bloomberg Podcasts Today
Bloomberg Audio Studios, podcasts, radio news. The election is only
about a week away, and while most major polls, including
the latest Bloomberg Morning Console poll, show Vice President Harris
and former President Trump are running neck and neck, Wall
Street has become increasingly convinced Trump is going to win,
(00:26):
and that conviction is manifesting itself in what's come to
be called the Trump.
Speaker 2 (00:30):
Trade, the Trump trade, as some have been calling it,
the so called Trump trade.
Speaker 1 (00:34):
We see those games from the Trump trades, who are
the winners and who are the loser? Investors are effectively
betting on a Trump win in the stock market, in
the bond market, in currencies, in crypto Bloomberg Opinions, John
Author says he's never seen anything like it. Wall Street
paying such close attention to a presidential election. He compared
to what's happening now to his first election he covered
(00:56):
in the US, that was Dole versus Clinton in nineteen
ninety seven.
Speaker 2 (01:00):
I actually spoke to somebody in one of the large
firms two days later who said, did Clinton win? And
wasn't embarrassing? Yes he did? I mean that there was
You couldn't tell anything about that election from prices before
it happened or after. This is so different from.
Speaker 1 (01:22):
That, it's hard to overstate John says how much things
have changed since then.
Speaker 2 (01:27):
It's a very interesting, difficult, flammable situation. The level of
interest is unusual, and it's pretty extreme.
Speaker 1 (01:40):
I'm David Gura, and this is the big take from
Bloomberg News today on the show, The Trump Trade and
what it tells us about how Wall Street sees this
election and the future of the economy. What is the
Trump trade? What exactly is Wall Street betting on? Okay,
(02:00):
Trump trade?
Speaker 2 (02:01):
Very broadly, it's positive, bullish on stocks and negative bearish
on bonds. At present, it seems to be predicated on
the belief that even though a Trump presidency will be
negative for bonds, it won't be so negative. It won't
push up yields so much that it derails the stock market.
(02:23):
So that's basically the Trump trade, a belief that Trump
is going to win and that what he does will
be expansionary and that it's also going to boost growth
and help the stock market.
Speaker 1 (02:35):
Could I ask you how people are playing this in
a few different outset classes as you mentioned Starks, Yes,
I would guess that there would be people who think oh,
this is going to be good for energy stocks, for instance,
or financials. Perhaps there'll be less regulation.
Speaker 2 (02:48):
Yeah, companies that are deemed to be very benefited by
logistics by globalization have a problem. If you were interested
in FedEx, for example, that's plainly doesn't do well when
Trump's numbers are seen to improve. But yes, overall a
Trump win is seen to be good for classic cyclical
(03:11):
companies and it's not so great for classic defensive, staple
type companies.
Speaker 1 (03:19):
How about in the bar market.
Speaker 2 (03:20):
Bond market generally there are two animating features here. One
is it's a cliche, but it is true that bond
markets prefer gridlock. When you have gridlock when one party
in Congress actors a check on the presidency, generally speaking,
the deficity is less likely to get out of control,
Supply is less likely to be too heavy, and so
(03:41):
that keeps yields lower. The assumption, which I think is
probably correct, is that if Trump pulls off the presidency,
the chances of overwhelmingly strong that he wins the Senate
as well, and probably also holds onto the House. So
if you have unified government, that's bad for bonds.
Speaker 1 (04:04):
John says fixed income investors like Most are not typically
motivated by ideology. They just want to make money, and
some are trying to bet on what a Trump presidency
might mean for inflation in both the short term and
the long term.
Speaker 2 (04:19):
It will absolutely, undoubtedly be terrible for inflation in the
short term. The total burden on the amount of tariff
that will be paid. This is Barclay's research. I'm going
from not anything to hyper liberal. The twenty eighteen tariffs
added about two percentage points onto the cost of the importans.
(04:41):
The tarfity is talking about now, if he really goes
through with it, will add seventeen percentage points. So this
is protectionism on a scale not seen since the Great Depression.
And if you are a company, you will pass that
on or pass as much of it as you can on,
because otherwise you're shareholders won't be very pleased with you.
(05:03):
So it is directly inflationary in the short term. I
don't see any arguments against that. If Donald Trump persuades
more production to come to the States, if he persuades
companies currently operating in China to move their production facilities here,
in the long term, that will definitely be good. But
(05:26):
it takes far longer to build a factory than it
does to raise a price, and so there is still
no way that you avoid an inflationary spike if he
really goes through with this, and that will be bad
for the bond market.
Speaker 1 (05:39):
Currency traders are also focusing on what former President Trump
has been saying about tariffs.
Speaker 2 (05:44):
The currency traders take it as an absolute given that,
particularly if he goes through with those tariffs, that it
will be very bullish for the dollar. If the Trump
proposals are accurate, that he's really going to try to
deter near suring as well and really try to force
people to bring production back to the US, this will
(06:06):
mean a very strong dollar. You then get into the issue,
as is so often the case, you need to start
thinking in terms of a chess player and what the
next moves will be. If, as is likely, you get
a startling strengthening of the dollar, which makes it that
much harder for US exporters, presumably the next response either
(06:28):
will be okay, maybe these tariff's answers to a great idea,
or what can we do to push the dollar lower? Now?
One possibility which is not particularly positive for the markets
is that we then have a President Trump trying to
impinge upon the Fed's independence to get rates down when
they would otherwise rise and weaken the dollar, which for
(06:52):
any number of reasons would really terrify people. The other possibility,
given that Trump at least put his name to a
book of the deal, is that you could try to
have a grand deal two weeken the dullo.
Speaker 1 (07:07):
That's happened before when Ronald Reagan was the president, But
the world has changed a lot since then, and John
says it would be hard for Trump to broke were
in agreement like that today. Coming up, how the Trump
trade has evolved, how it's playing out in prediction markets,
and what happens to the Trump trade when we find
out the outcome of the election. That's next. Another place
(07:37):
where you can see investors betting on a Trump win
is in the prediction markets. Today. They exist on sites
like Predicted and the Iowa Electronic Markets where people can
bet on the outcome of the election. But Bloomberg opinion
columnist John Authors says prediction markets have a long history.
Speaker 2 (07:54):
Prediction markets have been around for an extremely long time.
They used to be thriving prediction markets in papal conclaves
in the fifteenth and sixteenth century.
Speaker 1 (08:05):
Who's going to be the next pope?
Speaker 2 (08:07):
Who is going to be the next pope? Cardinals would
tell their attendants who was leading, and they would rush
out and put bets on it with the traders out
there on the streets of Rome, and the betting markets
could be surprisingly accurate, and the money that was involved
was multi millions in today's today's terms, because obviously in
(08:30):
Renaissance Rome, who is going to be the next pope?
Really about it, and there were prediction markets writing on
the floor of the New York Stock Exchange for many
decades at the beginning of the twentieth century.
Speaker 1 (08:43):
Today, another one of these prediction markets is called poly Market.
Speaker 2 (08:48):
It's a big and liquid market. Officially, Americans can't trade there,
which ought to be a very big red flag sign.
There can be some extra dispassion attitude that can come
from not actually being American.
Speaker 1 (09:03):
In recent days, a polymarket user who goes by Freddy
nine nine on the site has bet more than forty
five million dollars on a Republican victory. He's been identified
as a French national with extensive trading experience and the
financial services background, according to Polymarket, and John says one
thing that sets polymarket apart is that, unlike other prediction markets,
(09:26):
there is no limit on what you can bet.
Speaker 2 (09:28):
It's a more liquid market. You can also express your
conviction more easily because you can bet more. Polymarkets like
any markets, if somebody enters with a really big bait,
it will move, which is what's happened after Eaton Musk
told everybody, look at polymarketing, isn't it wonderful?
Speaker 1 (09:47):
John is talking about a post Musk made on x
in early October in which he praised prediction markets as
being quote more accurate than polls, as actual money is
on the line.
Speaker 2 (09:57):
The last time I checked, when we were recording this,
I think polyma market put the odds on Trump winning
at sixty two percent. That's more than a one in
three chance that Kamala Harris is the next president. According
to polymarket. You wouldn't bet your life on this. And
that's to some extent the point of where a prediction
market has its advantage. You see the price and then
you think, well, I do think Donald Trump is probably
(10:20):
going to win. But do I really know that the
Democrats don't have a better ground game they did last time?
Do I really know that the polls aren't just missing
lots of very motivated, angry young women who weren't voting
last time because of the abortion issue. Actually, no, I
don't know that. So am I really confident enough to
(10:40):
bet much more than that. No, Actually, we'll leave it
at only about a sixty percent chance. That is the
benefit of prediction markets that they do capture that, But
it's not the same. There's there are certainly people who
think that polymarket at sixty two percent for Trump means
they think Donald Trump will get sixty two percent of
the votes, which be an absolutely monstrous, historic landslide. No,
(11:04):
it doesn't mean that that isn't going to happen.
Speaker 1 (11:07):
I wonder what happens on election day. Say Trump wins,
what does that mean for people who have bet on
this Trump trade? If he loses, what does that mean.
Speaker 2 (11:15):
In terms of the bond markets. I imagine you would
see a big relief rally into bonds and you would
probably see some degree of a sell off in stocks
if you have a Kamala Harris presidency. If and I
think it's very unlikely, but if if somehow or other
John Tester wins in Montana or Ted Cruz loses in Texas,
(11:37):
which would make a lot of people in this country
extremely happy. But I still don't quite imagine it happening.
If somehow or other you get a clean sweep for
Kamala Harris rather than a checked Kamala Harris, then I
imagine the sell off in bonds would continue and the
stock market would probably not like that very much either.
(12:00):
I think the best outcome, probably for most asset classes,
is Kamela checked by the Senate. Possibly Camela checked by
the Senate and the House. That would not have any
great negative response. I don't think.
Speaker 1 (12:15):
How good is Wall streeted predicted the outcome of elections
if you look at.
Speaker 2 (12:18):
History, Oh, the number of times.
Speaker 1 (12:22):
As good as the cardinals.
Speaker 2 (12:24):
Yes, I mean the over history twenty sixteen, the polls
were wrong. Answer with the prediction markets. It was one
where for whatever reason, people just didn't catch what was happening.
Over history, the various prediction markets that were available were
better than the gallop pole over a series of elections,
(12:47):
So prediction markets generally are pretty good over history. The
number of examples of really big sell offs or booms
in response to an election result is pretty minimal, which
means that Wall Street is generally not surprised by the results,
twenty sixteen being the big, glaring exception to that. I
(13:11):
think one of the things that's very difficult is again
that you need to know about the chess moves ahead.
Like from what we know now, you can say various
things about Harris versus a Trump foreign policy, domestic policy,
but broadly speaking, it's not that obvious how different things
would be.
Speaker 1 (13:33):
This is the Big Take from Bloomberg News. I'm David Gura.
This episode was produced by David Fox. It was edited
by Caitlin Kenny and Sid Verma, and mixed by Alex Sagura.
It was fact checked by Adriana Tapia. Our senior producer
is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our
executive producer is Nicole Beemster Boor Sage Bauman is Bloomberg's
(13:54):
head of Podcasts. If you liked this episode, make sure
you subscribe and review The Big Take wherever you listen
to podcasts. It helps people find the show. Thanks for listening.
We'll be back tomorrow. Hey, everyone, Bloomberg wants to hear
(14:14):
from you. Help make shows like ours even better by
taking the Bloomberg Audience Survey and have a coffee on Bloomberg.
For doing it, visit YouTube dot com slash Bloomberg Podcasts
and click the link in our profile or community section.
To take the Bloomberg Survey, hosted by our partners Material,
go to YouTube dot com slash Bloomberg Podcasts Today
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