By Steven M. Sears
Go long America.
Our industrial, technological, and financial innovation inspires the world far more than our dangerous political divisions could damage our role as the world's most important nation.
The failed assassination attempt of former President Donald Trump hasn't united Democrats and Republicans, but it has unleashed waves of patriotic buyers into the stock market. When the market opened for the first time since he narrowly avoided death, Trump Media & Technology Group surged as much as 50% on 20 times average daily trading volume.
The rally suggested Trump's supporters bought the stock like a Make America Great Again hat to express support. The S&P 500 index also rallied.
The assassination attempt has apparently removed doubts that Trump and his pro-market, antitax agenda will prevail in the November election.
President Joe Biden is struggling. Ardent supporters have turned on him, fretting 81 is too old for another term. Trump is 78, but he displayed extraordinary toughness after he was shot, jumping up, pumping his fist, and shouting as blood stained his face and ear.
At this moment in U.S. history, investing and politics are unusually intertwined. The leading presidential candidate's initials are the stock ticker of a New York Stock Exchange company.
Voluble billionaires, including Tesla's Elon Musk and Pershing Square's Bill Ackman, endorsed Trump on X just after he was shot. Tesla surged Monday, too.
Politics are easy for investors to discuss but hard to price. Still, the market's year-to-date performance has always seemed stronger than warranted by fundamentals.
The Federal Reserve is expected to lower interest rates, and healthy corporate earnings support stocks, but something else has seemed at work.
The market strength could well be boosted by hedge funds and other major institutional investors that tend to be secretive pre-positioning in anticipation of Trump's victory. Order-flow analysis would likely legitimize that assertion, but market data can be twisted to confirm most conclusions.
One element, however, is observable. The futures curve of the Cboe Volatility Index, or VIX, measures U.S. stock ownership risk. It edged slightly lower after the assassination attempt, indicating a diminution of market fear. The curve has been elevated around the election for much of this year, reflecting fears that a Trump loss could spark a civil war and that Biden's policies would hurt investors.
In January, we suggested using November call and put options on the S&P 500 SPDR exchange-traded fund to trade the election. The market has since advanced. Trump's victory seems certain, though more information is needed before translating campaign momentum into single-stock ideas.
Trump-centric stocks will entice many people, but their gains could prove short-lived if investors find taking profits hard to resist. The broad market, however, should keep advancing in anticipation of policy clarity emerging as the November election nears. Besides, global politics also are dangerously volatile, and that reinforces the S&P 500's role as the world's safest equity asset.
With the S&P 500 SPDR ETF at about $565, bullish investors can buy the January $580 call and sell the January $620 call -- a so-called bull spread. The trade costs about $14.55. It's worth $25.45 if the ETF is at $620 at expiration. If it's below $580, the trade fails.
Even after risks and rewards are factored, and the world's political volatility is considered, the ingenuity of America has undeniable appeal -- and that is what the markets ultimately represent.
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(END) Dow Jones Newswires
July 19, 2024 21:30 ET (01:30 GMT)
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