To The Moon

As the U.S. presidential election approaches, traders are gradually starting to price in election risks, with indications showing that Kamala Harris, who had been gaining momentum, is now being overtaken by Donald Trump. The "Trump trade" is regaining its previous popularity, boosting risk assets.

Advantages in Swing States and Policy Expectations

Trump's rising support in swing states brings more uncertainty to the market. Voters still hold high expectations for his promises of tax cuts, energy independence, and increased infrastructure investment. Polls conducted from October 14 to 16 indicate that Trump’s advantage in key swing states is expanding, significantly increasing market expectations for his election and undoubtedly reigniting interest in the "Trump trade."

Expectations of an Economic Non-Landing

The latest U.S. retail sales data for September shows a month-over-month increase that exceeded market expectations, further enhancing the possibility of an economic "non-landing." This data complements previous strong CPI and non-farm payroll reports, causing the market to reassess its expectations for Federal Reserve rate cuts. Traders are beginning to re-evaluate the impact of Trump's election on economic policy, leading more investors to view his chances of victory favorably.

Key Industries and ETFs

Financial Sector: Trump’s Promises of Tax Cuts and Deregulation
The financial sector may be one of the primary beneficiaries of a Trump election. The market expects him to potentially push for deregulation and tax cuts again, which would help enhance the profits of financial institutions. The Financial Select Sector SPDR Fund (XLF) is a leading ETF that offers broad exposure to the financial sector, providing investment opportunities in banks, insurance companies, and other financial services. XLF's portfolio includes major financial firms such as JPMorgan and Berkshire Hathaway, which could benefit from favorable policies.

Energy Sector: Focusing on U.S. Energy Independence
Trump's strong stance on promoting U.S. energy independence is expected to continue supporting the traditional energy sector. If he is elected, the oil and gas industry could receive further policy support, especially following his commitment to reduce restrictions on fossil fuels. The Energy Select Sector SPDR Fund (XLE) is a leading ETF covering oil and gas producers. XLE holds energy giants including ExxonMobil and Chevron, and if the U.S. continues to pursue energy independence policies, related stocks could see significant gains.

Industrial and Infrastructure: Outlook for Infrastructure Investment
Swing states are often key areas for infrastructure development. Trump has promised a large-scale infrastructure plan during his campaign, which would positively impact industrial firms if realized. The Industrial Select Sector SPDR Fund (XLI) is an important ETF for industrial companies, covering firms like United Technologies and Caterpillar. XLI mainly holds companies that would benefit from infrastructure investment, making it suitable for investors looking to capitalize on U.S. economic recovery and infrastructure spending opportunities.

Dollar Trends: Strong Policies and Dollar Expectations

Trump's strong trade policies and America First strategy could again drive the appreciation of the dollar, especially amid increasing international trade tensions or rising expectations for U.S. economic growth. A strong dollar may affect imports while also increasing the burden of U.S. debt, impacting the global economy. Investors can participate in the potential appreciation of the dollar through the Invesco DB US Dollar Index Bullish Fund (UUP), which tracks the dollar's performance against a basket of major currencies and serves as an important tool for managing dollar volatility, especially when the market anticipates a dollar increase.

Bond Market: Inflation Expectations and Interest Rate Changes

The large-scale fiscal spending and tax cuts that Trump may bring could elevate inflation expectations. This would place pressure on the bond market, particularly long-term bonds. If inflation expectations rise, bond yields will also increase, leading to lower bond prices. Long-term bond ETFs like the iShares 20+ Year Treasury Bond ETF (TLT) may be negatively impacted in such an environment. TLT provides investors with exposure to long-term U.S. Treasuries and is suitable for those anticipating market volatility or rising interest rates.

Bitcoin: A Hedge Against Economic and Policy Uncertainty

Bitcoin is seen as a hedge against political and economic uncertainty, especially in light of uncertain monetary policy and inflation outlooks. The global trade tensions and policy uncertainty that may arise from a Trump election could prompt more investors to turn to Bitcoin. The ProShares Bitcoin Strategy ETF (BITO) offers a way to invest in Bitcoin through the futures market without needing to hold Bitcoin directly. BITO tracks the prices of Bitcoin futures and is suitable for investors looking to hedge against political and economic risks through Bitcoin.

Small-Cap Stocks and Swing States: Domestic Demand and Growth Potential

If Trump is re-elected, small-cap stocks may benefit from domestic policy changes. The iShares Russell 2000 ETF (IWM) provides investors with broad exposure to U.S. small-cap stocks, which are more sensitive to changes in domestic policy and may perform well in favorable policy environments. IWM offers diversified exposure to the small-cap market, making it suitable for those optimistic about U.S. domestic economic recovery and the growth of small businesses.

Risks and Opportunities

While Trump’s growing advantage in swing states presents opportunities for specific industries and assets, the market also carries a high level of uncertainty. The speed of policy implementation, international relations, and potential economic downturns could all affect market performance. Particularly with regard to assets like the dollar, bonds, and Bitcoin, investors should remain cautious and flexible in adjusting their investment strategies.

Conclusion

As Trump’s support in swing states rises, the market is reassessing the potential impact of his election on economic policy. From financial to energy and industrial sectors, as well as the dollar, bonds, and Bitcoin, related ETFs offer flexible and diverse investment tools. Investors can utilize ETFs such as XLF, XLE, XLI, UUP, TLT, BITO, and IWM to capture potential market opportunities based on expected fluctuations across different asset classes.