Gold Reaches New Record High; Dollar & Bond Yields Surge Amid Positive Data and 'Trump-Trade'

Improved 'Soft' and 'Hard' Data

Today saw an improvement in both 'Soft' data (Philly Fed & NAHB) and 'Hard' data (Retail Sales, Initial Claims). However, manufacturing production did not fare as well, according to Bloomberg. Despite the slump in manufacturing, the data reinforced the 'no landing' narrative and significantly reduced rate-cut expectations.

The Trump Trade Narrative

The Trump Trade narrative is currently dominating the market. Goldman's Chloe Garber informed clients today that Polymarket is priced at 60/40, with approximately 1.5% upside to 65/35 odds, and a 4% downside to 50/50 odds. Garber stated that there is a possibility this pair could reach the July highs before the election, but it would require some unfavorable polls for Kamala Harris. Clients are betting in this direction because a 60/40 market going to 100 delta is an enticing proposition, whereas a coin flip is not. Garber also noted that this local Trump trend has not been driven by earnings revisions, which have been slightly negative since the end of July. Therefore, if the 3Q earning season matters, these stocks could be affected.

Performance of Small Caps and Majors

Small Caps underperformed today, but all the majors ended well off their highs of the day. The S&P ended unchanged and Nasdaq marginally higher as The Dow hit another record closing high. Interestingly, the Nasdaq's outperformance today comes at a key support level relative to Russell 2000. At the same time, Polymarket sees the odds of a 'Red Sweep" also soaring, which helped send yields soaring on the day, led by the long-end (30Y +10bps). On the week, the short-end remains the laggard.

Dollar Index and Gold

The dollar index continued its upward trend, rising 12 of the last 14 days. In a rather unusual turn of events, gold surged to yet another new record high, just shy of $2700, despite the dollar's move. The correlation between the dollar and gold has spiked dramatically in the last few weeks.

Bitcoin, Oil Prices, and Stock Predictions

Bitcoin saw a slight decrease on the day after topping $68,000. Oil prices remained stagnant for the second day in a row, with WTI trading in a very narrow $70-71 range. Finally, stocks are aggressively pricing in a 'Trump victory' versus a 'Harris victory'. While it is 'easy' to manipulate the noisy and game-able prediction markets (given their low liquidity), it is arguable that the various stocks in these baskets from Goldman Sachs are 'game-able', suggesting there is more than just a whale or two driving this sentiment narrative.

Bottom Line

It's clear that the market is currently being influenced by a variety of factors, from political narratives to economic data. The surge in gold prices, despite the dollar's move, is particularly intriguing. The question is, how long can these trends continue, and what will be their long-term impact on the market? We'd love to hear your thoughts on this. Feel free to share this article with your friends, and remember, you can sign up for the Daily Briefing, which is delivered every day at 6pm.