Here are some things that have been touted as a " Trump trade," a bet on Donald Trump winning the election:
-- Buy Trump Media and Technology Group $(DJT)$, which runs his favored social media
-- Buy bitcoin, gold and the dollar -- Sell Treasurys and the Mexican peso
-- Buy healthcare and prison stocks; sell clean-energy stocks
-- Buy European defense stocks
-- Buy banks, especially regional banks
-- Buy U.S. stocks while selling the rest of the world
There are plenty more, but the track record of just this handful ought to give investors pause before they place their bets. Some have clearly worked, but with questionable logic. Others worked but at least in part for the wrong reasons. Some failed miserably.
The past month has offered a perfect test. In the now-legal political betting markets Trump and Democrat nominee Kamala Harris were neck-and-neck in early October, when he began to pull decisively ahead. Trump trades should have done well.
The most obvious trade is DJT, and it worked perfectly. It rose and occasionally fell almost exactly in line with the betting odds, more than tripling in price by Tuesday, before tumbling as his odds worsened in the past few days.
The problem with DJT is that it isn't clear what happens if Trump wins. The company is sitting on a lot of cash, but the actual business, branded as the Truth Social network, barely exists. Sales of $836,900 (yes, you read that right: less than $1 million) in the second quarter were down almost a third compared with a year earlier, and operating losses rose fivefold to $18.7 million.
The story has to be that Trump wins, favors Truth Social and users and money pour in. But quite how it could justify its market value of $6.1 billion, more than 3,000 times annual sales, is pure speculation.
The other successful Trump trade has been private prisons. Geo Group and CoreCivic have risen and, since Tuesday, fallen, with Trump's betting odds. Unlike DJT, there is good logic for how to make money from a Trump administration that enforces mass deportations.
None of the other Trump trades has moved as perfectly with the betting odds as DJT, and all are questionable. Start with what worked since Oct. 4.
The dollar is up. Bond yields are up. And gold is up. But were they really up because of bets on a Trump White House? Bond yields and the dollar are easily explained without considering the election, as both usually rise with a stronger economy -- and the U.S. economy was surprisingly strong.
Gold has been on a tear for a while, amid concerns about global tensions and moves away from the dollar as a reserve currency. Trump might be better or worse for gold than Harris, but either way the price actually rose more when his odds were falling during September than it has since Trump was at 50-50.
Mexico's peso has moved more closely with Trump's odds, and given his threats to trade, this makes sense. But its weakening also began with the outgoing president's remaking of the judiciary, which has worried investors. My guess is some of the peso weakening is the Trump trade, but quite how much is hard to split out from dollar strength and the justice system concerns.
Bitcoin is up, which fits with Trump's promise to create a bitcoin "strategic reserve" and make the U.S. the "crypto capital of the planet." Bitcoin is sure to get an easier ride from regulators if he wins.
Yet, like gold, bitcoin rose more as Harris's odds improved in September than it has since Oct. 4. Day-to-day moves in bitcoin haven't been particularly closely tied to how Trump's betting odds shifted, either, or to the DJT stock price, moving in the same direction a little over half the days since Oct. 4. The broad direction is right for a Trump trade, but bitcoin's daily moves are driven by vibes, not economics or politics.
Drill down into the stock market and plenty of putative Trump trades haven't really worked even as his odds improved from 50-50.
Healthcare stocks have fallen about 3%, the opposite of what was claimed for them based on his dislike of Obamacare.
Solar stocks are actually down less than the oil-dominated energy sector, but with both down close to 6% the gap is too small to matter.
European defense was meant to be a Trump trade because concern about his isolationism would force countries both to spend more protecting themselves and to reduce their reliance on U.S.-made weapons systems. Yet, European defense stocks are down on average, while when Harris's odds were improving in September they were up.
Trump's threats of tariffs are the biggest policy economists worry about, with forecasters mostly agreeing that they would slow the economy and increase inflation. But in the stock market, the tariff threat is hard to see in prices. Stocks of some retailers that import a lot and would suffer from tariffs, such as RH and Target, have fallen, but so have those of companies with significant U.S. production, such as Arhaus, which ought to be relative winners.
Banks seem to offer more clarity. Big banks beat the S&P, and regional banks did better still, with the Trump trade theory of lower regulation offering support. But the most obvious Trump bank trade is Flagstar Financial, the New York bank bailed out by Steven Mnuchin, Trump's former Treasury secretary. Its shares have fallen sharply, even as the rest of the sector has rallied. Perhaps the bank rally is more about the fast-growing economy than the Trump trade.
Finally, there is the America First story: Buy America, sell everything else. This one has worked, but not as Trump traders might hope. The S&P 500 is down since Oct. 4, but the trade worked because stocks in the rest of the world fell far more, in dollar terms. Yet, the trade also worked when Harris's odds were improving in September, when the rest of the world rose, but the S&P rose far more.
There are probably some elements of Trump bets in these trades, just outweighed by the other things going on. But it is also plausible that markets aren't very good ways to bet on politics. We don't even know if the new betting markets provide a better picture of his chances than the polls, which remain too close to call.
Worse, Trump's record of doing what he says is patchy. Many of his policies would need a sweep of Congress to implement, and would surely be challenged in the courts (similar issues apply to what we know of Harris's policies).
It is hard for investors to bet on politics. If you must, the cleanest way to do it is in the betting markets, not the stock market.
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