What it means

Donald Trump does not deserve re-election. Neither does he deserve to get shot.

In the wake of yesterday’s assassination attempt, however, the odds of a Trump return to the White House have grown. They jumped after the debate, which Joe Biden flubbed, and surged again after a 20-year-old lowlife with an AR-15 rained down bullets. Democrats were already in panic mode over their candidate’s age issues, and now they confront an irrepressible opponent who fist-pumps, wearing blood.

So it looks like Joe’s done. And sadly, political violence has returned to America, as recent surveys have predicted. More citizens than ever in the history of polling say civil war is a possibility.

What does all this mean for financial markets? And how should you react?

Growing chances of Trump as 47 mean the US is closer to a change in economic policy. Investors expect a re-elected Trump would pursue high-growth, higher-inflation strategies. Monetary policy would be looser, tax breaks maintained, federal deficits increased and, ultimately, interest rates pushed higher.

That’s why the bond market reacted when the debate debacle unfolded, and why it will likely do so again in a few hours. Prices may drop and the yield curve steepen. In addition, Trump’s vow to increase tariffs on all imports now seems closer to reality. That should bolster the US dollar and weaken Treasuries as this is also a path to higher consumer prices and more inflation.

In the short run? Like tomorrow?

Volatility, probably, when the markets open. That may be short-lived. What investors crave most is certainty. The shooting yesterday increases it, as Trump’s electoral fortunes swell. So a level of uncertainty about the November vote is removed. The ‘Trump trade’ can go forward with investors betting on a good outcome for financial and energy stocks as economic growth is more likely to be pumped and environmental regs weakened. Also benefitting would be credit care issuers (banks) and health insurers (Obamacare in the crosshairs).

Trump has always been pro-market. He’s taken as a barometer of his success the level of the Dow and the S&P. If Biden remains the Democratic candidate, or that party does not come up with an instantly credible alternative, investors may continue to ramp equity indices higher. As that happens and an expansionary economic agenda gets closer, bonds may well do the opposite. Higher yield, lower prices, and in the words of one expert observer, a ‘market riot’.

Also in the next few hours – until more is absolutely known about why this happened – is a move towards haven assets. Gold didn’t waver much. But Bitcoin popped to $60,000.

Well, what should you do?

In one word, nothing. People with balanced and diversified portfolios, 20% in US equities, a quarter of the portfolio denominated in American dollars, global exposure and a good mix of income-producing assets can ride this out. It’s not the first political assassination attempt in the States. It’s far from the first crisis. History shows us political polarization and shocks have less impact on investments and markets than what central bankers do and how much money corporations churn. The outcome of the election may look clearer now to investors – and many will trade on that assumption – but the impact on the economy and markets of a second Trump presidency are a long ways off.

The odds of him winning have jumped to 70%. It’s reminiscent of Ronald Reagan’s polling after he took a bullet in 1981 – up 7%. This time, given the intense partisan divide in America, the swing in public opinion could be more extreme. Already the path to victory for President Biden was narrow as he bled support in battleground states. Now he is pitted against a man with the bravado and political moxy to be shot and still rise up to campaign.

The Republican convention rolls out this week. Expect a spectacle.