Wall Street is already weighing potential market impact of a Trump presidency

By Vivien Lou Chen

Goldman Sachs team says `the 2024 U.S. election has the potential to be a major market event,' boosting the dollar and bond yields

With the U.S. presidential election still more than nine months away, Wall Street is weighing in on the possibility of a Donald Trump return to the White House and is mapping out the potential reactions that could unfold in financial markets. As Trump faced off with challenger Nikki Haley in the New Hampshire Republican primary on Tuesday, Dominic Wilson and Vickie Chang of Goldman Sachs (GS) looked back to the market reaction seen from the results of last week's Iowa caucuses. In particular, they zeroed in on a 13-hour window after the caucus took place at 7 p.m. local time on Jan. 15 and point out that the dollar strengthened against its major peers by enough "to look unusual relative to normal levels of volatility."

MarketWatch Live: Trump aims to become first nonincumbent Republican to win both Iowa and N.H.The greenback's pronounced moves during that window suggest that Trump's likely focus on trade and international policies "could provide a meaningful further boost to the dollar," Wilson, a senior adviser in Goldman Sach's global markets research group, and Chang, a strategist, wrote in a note late Monday.

Treasury yields also moved higher, helping to support their view that a Trump-led Republican sweep could affect the government-debt market as well.

Read: Stock-market investors face an ugly election season. Can bulls take comfort in history? and Trump tax cut 2.0: Would slashing the corporate rate again boost stocks?Goldman Sachs isn't alone in considering the prospect of a Trump victory on Nov. 5. On Monday, Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York, reiterated his firm's view that the election would likely be a rematch between Trump and President Joe Biden, the Democrat who topped Trump in 2020 by 7 million-plus votes and a 306-232 margin in the Electoral College.

TD's baseline scenario is that Trump wins and that Republicans recapture the Senate, "though control of the House may go to the Democrats by a tight margin," Goldberg wrote in a research note. "While improving economic conditions would historically suggest solid odds for President Biden's re-election, non-economic factors and the lingering specter of still-high inflation could play in Trump's favor."In Goldberg's view, "markets are likely to focus on tax/growth, deficit, regulation, geopolitical, and tariff implications in their reaction to the election." A Trump victory and split congressional control should push the 10-year term premium higher and "may boost equities amid expectations that corporate taxes remain low."

See: Trump tax cut 2.0: Would slashing the corporate rate again boost stocks?Last week, Jamie Dimon, chief executive of JPMorgan Chase & Co. (JPM), spoke about Trump from the World Economic Forum in Davos, Switzerland. He urged people to consider why supporters of the Make America Great Again movement are choosing Trump, volunteering his view that the former president "grew the economy quite well" and "wasn't wrong" about several critical issues that voters care about.Investors have been seen as flocking to a so-called Trump trade this week, helping to give the Russell 2000 index of small companies RUT a lift on Monday. On Tuesday, the 30-year Treasury yield BX:TMUBMUSD30Y finished at its highest level since Dec. 4 ahead of this week's preliminary fourth-quarter U.S. GDP reading and PCE inflation data for December, while U.S. stocks DJIA SPX COMP ended mostly higher, with the S&P 500 reaching a third record close of 2024.

Read on: Fake Biden phone call instructs New Hampshire supporters to skip Tuesday primary

-Vivien Lou Chen

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01-23-24 1600ET

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