Investors are keeping calm and carrying on as thoughts of a second Donald Trump presidency begin to percolate amid President Joe Biden's primetime debate debacle.
"The one takeaway from the debate last week was the market has sort of made its peace with Donald Trump being the next president," Bradesco head of equity strategy Ben Laidler said on my "Opening Bid" podcast (video above or listen here). "We saw markets sort of edge up a little bit and we didn't see that volatility."
Trump and Biden left debate watchers stunned, with the former spewing falsehoods and the latter appearing frail and out of touch.
Since the debate aired the evening of June 27, though, the S&P 500 (^GSPC), Nasdaq Composite (^IXIC), and Dow Jones Industrial Average (^DJI) are only down fractionally.
Shares of market leader Apple (AAPL) have gained about 1.6% while Amazon (AMZN) has seen its stock trade sideways.
Morgan Stanley strategist Mike Wilson said he received client interest in rotating into 2016 "Trump Trades" in the cyclical and small-cap space the morning after the debate.
"Market expectations for fiscal expansion, reflation, and less regulation under a Trump presidency drove these initial moves, in our view," Wilson said in a client note.
One area to watch to see if Laidler's thesis is fully correct: the sizzling AI trade.
Shares of AI bellwether Nvidia (NVDA) are off by 3% in the wake of the debate.
Said Laidler, "I think investors are looking back to the first Trump presidency and thinking, you know, that was fairly pro-business and I made a lot of money — maybe we're going to get a repeat of that."
Investors generally enjoyed solid returns during the Trump presidency despite various surprise events such as the COVID-19 pandemic and the storming of the Capitol. Not to mention fresh tariffs on key trading partner China.
The Dow Jones Industrial Average returned 56% during the Trump presidency, according to data crunched by LPL Financial. The Dow notched 126 new highs.
The S&P 500 climbed more than 50%.
Apple's stock surged in excess of 350% during the Trump presidency, part of a broad rally in tech stocks.
Pros say the gains were fueled primarily by the Trump tax cuts boosting corporate profits and the wealth effect from stocks spurring consumer spending.
But those expecting sunshine and rainbows in a potential Trump presidency may want to dial back expectations, at least initially.
Wilson points out that the backdrop for stocks is much different from that of 2016.
"We would argue that the cycle is more mature today than it was in 2016, as evidenced (among other variables) by the two-and-a-half-year decline in the Conference Board Leading Economic Indicator series," Wilson said.
"The market welcomed a reflationary playbook in 2016. Inflation was not a headwind to consumers in the way it is now, and the US economy was recovering from a manufacturing/commodity recession, the recovery of which was aided by the prospects of a pro-fiscal/reflationary policy regime. Today, inflation is a notable headwind to consumers and fiscal sustainability dynamics are top of mind for the bond market."
Ford (F) CEO Jim Farley says consumers may get a little nervous around the presidential election but doesn't believe it will materially stunt demand for autos. Catch Farley's insights below in an "Opening Bid" episode.
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