From US stocks to US bonds, the "Trump trade" is cooling down, a new possibility is emerging

After Biden dropped out, Harris became the Democratic presidential candidate. The political uncertainty intensified, and the market readjusted its trading expectations, with signs of cooling in the "Trump trade." On Monday, the S&P 500 index saw its largest increase since early June, with the Nasdaq 100 index rising by 1.5%. The index of the "Big Seven Tech" companies rose by about 2.5%, led by Tesla and Nvidia. The Russell 2000 index rose by 1.7%. The U.S. bond market has begun to prepare for Biden's withdrawal, with bond yields edging up slightly and the 2-year short-term bond yield rising. Market expectations of a rate cut by the Fed in September boosted policy-sensitive U.S. bonds, narrowing the spread between long and short-term bond yields. Analysts believe that the Democratic Party may win one of the houses of Congress, increasing the probability of a "deadlock." Although Harris's current support rate is still far below Trump's, the probability of downstream Democratic victories in the House elections has greatly increased, which will suppress the probability of Trump's victory, bearish for the "Trump trade." Stocks based on a "Democratic victory," such as renewable energy, solar companies, electric car manufacturers, and cannabis stocks, have begun to rise, while the "Trump trade" such as oil and natural gas, financial, and healthcare stocks have begun to cool down. With 4 months left until the election, The Boock Report analyst Peter Boockvar believes that regardless of who wins the election, debt and deficits will continue to soar. If Trump wins, he will fully extend the tax cuts until 2025, but may impose a large number of tariffs, more protectionism, and possibly a weaker U.S. dollar. If Harris wins, some of Trump's tax cuts will not be extended, there will be some tariff policies, more significant protectionism, and the U.S. dollar may weaken. Some analysts also point out that this political turmoil should not substantially change the market's direction. Tom Essaye of The Sevens Report said, "The ultimate direction of the S&P 500 index will still be determined by economic growth."