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Market Impact of Trump's Rising Odds
The increasing betting odds of a Donald Trump victory have resulted in gains for US equities, yields, and the dollar. Conversely, Europe-focused and tariff-sensitive market segments have struggled to keep pace.
Despite these market movements, polls reveal a tightly contested race between Kamala Harris and Donald Trump. Analysts expect a divided Congress, with Republicans likely to retain the Senate and Democrats favored to reclaim the House. According to Barclays strategists, a divided government appears to be the most probable outcome, countering the "Redsweep" scenario the markets are currently pricing in.
Upcoming Election Risks
“Given the event risk and the close nature of the race, market jitters are expected leading up to the vote,” Barclays stated. Historically, global equity markets experience a rally post-election, driven primarily by sectors like Cyclicals and Value.
The impending vote may act as a catalyst for heightened risk-taking and capital rotation, especially into European equities as we approach 2025. However, any delay in announcing a winner could induce volatility in the markets.
Outcomes of the Election
Betting markets currently favor a Republican sweep, which may bolster US equities through potential tax cuts, while negatively impacting bonds due to inflation concerns. A split Congress under Harris might ease tariff risks and stabilize the market, a scenario Barclays views as favorable for European equities.
In contrast, if Trump wins but faces a divided Congress, stricter tariff and immigration policies could harm US equities and pose significant challenges for European markets.
Conclusion
In summary, the upcoming elections could significantly impact market dynamics. A Trump victory may bring volatility and opportunities, while a Harris win could stabilize tariffs and benefit European equities.
