Investors are staying calm as discussions about a potential second term for Donald Trump heat up following President Joe Biden’s shaky debate performance. Despite the primetime debate’s contentious nature, the markets have remained relatively stable.
Market Response to Debate Performance
“The main takeaway from last week’s debate is that the market has largely accepted the possibility of Donald Trump becoming the next president,” said Ben Laidler, head of equity strategy at Bradesco, on the “Opening Bid” podcast. “We saw the markets inch up slightly, and we didn’t experience the usual volatility.” Both Trump and Biden left viewers bewildered, with Trump making false claims and Biden appearing frail and detached.
Since the June 27 debate, the S&P 500 (INDEXSP:.INX), Nasdaq Composite (INDEXNASDAQ:.IXIC), and Dow Jones Industrial Average (INDEXDJX:.DJI) have seen only minor declines. Market leader Apple Inc. (NASDAQ:AAPL) has gained about 1.6%, while Amazon.com Inc. (NASDAQ:AMZN) has traded sideways.
Investors Sentiment and Historical Context
Morgan Stanley strategist Mike Wilson has noticed increased client interest in shifting investments into 2016 “Trump Trades” in the cyclical and small-cap sectors following the debate. “In our view, market expectations for fiscal expansion, reflation, and less regulation under a Trump presidency drove these initial moves,” Wilson wrote in a client note.
The response to Trump’s first presidency, characterized by solid market returns despite events like the COVID-19 pandemic and the Capitol storming, appears to be influencing current investor sentiment. During Trump’s tenure, the Dow Jones Industrial Average returned 56%, with 126 new highs. The S&P 500 climbed over 50%, and Apple’s stock surged by more than 350%, driven by Trump tax cuts that boosted corporate profits and the resulting wealth effect from increased consumer spending.
Current Market Dynamics
However, Wilson cautioned that the current market environment differs significantly from 2016. “We would argue that the cycle is more mature today than it was in 2016,” Wilson said, pointing to the two-and-a-half-year decline in the Conference Board Leading Economic Indicator series. “Inflation was not a headwind to consumers in the way it is now, and the US economy was recovering from a manufacturing/commodity recession, aided by the prospects of a pro-fiscal/reflationary policy regime. Today, inflation is a notable headwind to consumers, and fiscal sustainability dynamics are top of mind for the bond market.”
Future Prospects and Industry Insights
Despite the relatively calm market reaction, some stocks have experienced volatility. Shares of AI leader Nvidia Corp. (NASDAQ:NVDA) dropped by 3% following the debate. Laidler suggested that investors may be reflecting on the pro-business stance of Trump’s first term and considering the potential for similar gains.
Ford Motor Co. (NYSE:F) CEO Jim Farley commented that while consumers might feel nervous around the presidential election, he doesn’t believe it will significantly impact auto demand.