Markets Are Now Anchoring On Potential Trump Victory' - Ex-Soros CIO Says "All Pullbacks Should Be Bought - We are expecting an upward trajectory in the US equity markets"

Source: Bloomberg

In the midst of a highly contentious and unpredictable US presidential election, one former Soros Fund Management investing chief is making a bold prediction: a "Trump rally" in the stock market. Scott Bessent, now managing his own macro fund at Key Square Capital Management, believes that regardless of the outcome, investors should be buying any dips in the market. With polls showing President Trump with a solid lead over Joe Biden, Bessent argues that markets are now anchoring on the potential market-friendly policies of a Trump victory. In this article, we will explore Bessent's reasoning and delve into the implications for the markets.

Betting on a "Trump Rally"

Bessent's bet appears well-founded as the polls, averaged by Real Clear Politics, show Trump with a consistent lead over Biden. Despite a recent surge in Biden's odds, Bessent remains confident in his prediction. He argues that barring a substantial shift in the polls, all pullbacks in the market should be bought. This strategy has been supported by the performance of the 2024 Republican Policy Pair basket, which has closely tracked Trump's odds of winning since late 2022. As we have seen in previous elections, the stock market tends to favor a Republican victory, and investors are anticipating an extended market-friendly economic, tax, and regulatory environment under a second Trump term.

Market-Friendly Policies

According to Bessent, investors are particularly drawn to the potential market-friendly policies of a Trump victory. These include continued economic growth, lower taxes, and reduced regulations. So far, the improvement in economic conditions has had a limited impact on voter sentiment about the economy. As Goldman Sachs shows in the chart below, voters still rate inflation as the most important financial problem for their families, despite its slowing pace. This is good news for Trump, as Republicans tend to score higher when voters are asked which party they trust more to handle inflation and the economy.

Source: Goldman Sachs

Biden's Economic Team

Bessent also points out that the Biden White House economic team has already signaled a departure from Trump's policies. They have called for higher taxes on corporations and upper-income Americans and have thrown cold water on renewing most of Trump's tax cuts. While the Biden administration may argue that real incomes are rising, Bessent argues that this does not reflect the reality for many Americans. Aggregate incomes have risen less than the cost of essentials such as gasoline, food, and rent. This explains the lack of belief in "Bidenomics" among many voters.

Source: Goldman Sachs

FAQs

Q: How has the stock market performed under Trump's presidency?

A: The stock market has seen significant gains during Trump's presidency, with the S&P 500 up over 50% since his inauguration.

Q: What impact could a Trump victory have on the economy?

A: Investors anticipate an extended market-friendly economic environment under a second Trump term, with continued economic growth, lower taxes, and reduced regulations.

Q: How do voters rate inflation as a financial problem?

A: Despite its slowing pace, voters still rate inflation as the most important financial problem for their families, according to Goldman Sachs.

Q: What policies has the Biden administration proposed?

A: The Biden administration has called for higher taxes on corporations and upper-income Americans and has signaled a departure from Trump's policies.

Q: How has the stock market reacted to the polls showing a Trump lead?

A: The 2024 Republican Policy Pair basket has closely tracked Trump's odds of winning since late 2022, indicating that investors are anticipating a Trump victory.

Conclusion

In conclusion, Scott Bessent's prediction of a "Trump rally" in the stock market is based on solid reasoning. With polls showing Trump with a consistent lead over Biden, investors are anchoring on the potential market-friendly policies of a Trump victory. Despite the Biden administration's proposals for higher taxes and a departure from Trump's policies, Bessent argues that markets will continue to favor a Republican victory. As we approach election day, it will be interesting to see if Bessent's prediction holds true and how the markets will react to the outcome.