How to Trade the Trump Win

Markets have begun adjusting prices based on the possibility that Donald Trump may win the election, but it remains to be seen whether markets have fully reacted yet or if trading opportunities still exist.​

Is There Still Time?

As Trumps chances of winning the upcoming election remain close in the opinion polls but are rising in the final days before voting, traders have been taking pre-emptive positions ahead of the results potentially being declared next week. This could disrupt the markets as, normally, the outcome of an election has little long-term impact on stock prices in general. However, the significant differences expected in fiscal policy between Donald Trump and the current administration create specific trading opportunities. Emerging markets have declined, and cryptocurrencies are up. Not surprisingly, Trumps media company saw its share price double over the last month.

For traders wanting to participate, the movements may suggest that the potential results are already priced in. Therefore, depending on the outcome, the best trade could be to position for a correction. With an event receiving such close scrutiny from the media and investors, it can be difficult to identify trading positions that have yet to be noticed. On the other hand, the market has not yet fully priced in a Trump victory. This implies significant movements may still depend on the election result.

There Are Different Scenarios

More than Trumps winning alone is required; while the President has significant power regarding tariffs, spending is entirely under Congress's control. A divided Congress, with the Senate becoming Republican and the House Democrat, for example, would complicate negotiations ahead of the debt ceiling deadline on 31 December.

There is also the day the results are announced. Even if there is a clear sweep favouring Trump and his party, he will give an acceptance speech where he could announce important policy decisions. In 2016, he announced a $1 trillion infrastructure spending plan, which was a catalyst for the strong rise in the markets following the election results.

Russell 2000 Could Benefit

The Russell 2000 index has recently formed a leading wedge pattern at 2300, potentially followed by a minor decline, with further gains towards the previous high of 2460. However, prices could drop down to around the 2000 level before rising once again.

KEY TAKEAWAYS

Economic data in the UK and the US may spur a rebound in cable as UK growth is projected to continue and US inflation to fall. Better-than-expected UK figures could give the BOE more leeway to maintain interest rates high for longer, potentially boosting the pound. Key UK monthly GDP, manufacturing, and industrial production figures will be released, with a focus on growth momentum. Meanwhile, a slight upside surprise in the latest US inflation report could shake up markets and influence cables price action.