Wall Street Betting on Trump
The sudden shift of Matt Drudge from mainstream media prominence to obscurity has been one of the more notable events of the post-Trump era. Despite his previous support for Trump, Drudge's recent post, which claimed that Kamala had a 72% chance of winning according to Wall Street, was promptly disputed.
Goldman Sachs and JPMorgan Respond
Goldman Sachs and JPMorgan quickly responded to Drudge's claim, stating that the Trump Victory index had reached an all-time high, while the Kamala index had returned to Joe Biden levels. JPMorgan further reported that hedge funds were increasingly investing in Republican winner trades and divesting from Democrat winners.
JPMorgan's Positioning Intelligence team published a report summarizing recent hedge fund positioning as being "all-in on Trump themes." The report indicated that as the odds of a Trump presidency and a Republican sweep have increased, there has been a noticeable outperformance of themes perceived to be Republican Winners. Crypto stocks and small caps have performed better, while Renewables have underperformed.
Goldman Sachs' Republican Sweep Scenario
Similarly, Goldman Sachs has shown a bias towards a Republican sweep scenario, which has emerged as one of the bank's preferred trades ahead of the elections. The Goldman Republican victory pair trade has reached an all-time high, while the Democrat Victory basket has returned to Biden levels.
UBS' Republican Sweep Basket
UBS also has its own thematic pair trade, noting that the recent surge in the "Republican Sweep" basket has supported the S&P 500's rally to an all-time high. The UBS Republican Win basket has significantly outperformed the Democrat Win, having closed higher for 14 consecutive days.
Deutsche Bank's Market Reaction Analysis
Deutsche Bank has provided an analysis of how markets might react to different US election outcomes. The analysis suggests that there is a large variance of opinion on the likely market and growth outcomes. The largest variation in fiscal policy and growth outcomes is likely under a Trump administration, with a red sweep likely leading to the largest deficits.
Bottom Line
Overall, it appears that Wall Street is increasingly betting on a Trump victory, with a surge in sentiment into the Trump Victory/Republican sweep camps. This shift in sentiment is also largely why stocks continue to make new all-time highs day after day.
However, it is also important to consider that the market's reaction to election outcomes can be unpredictable and can vary significantly based on a range of factors. What are your thoughts on this analysis? Do you think Wall Street's bets will pay off? Share this article with your friends and sign up for the Daily Briefing, which is delivered every day at 6pm.
