Former President Donald Trump’s historic conviction on document forgery charges could lead to increased market volatility, experts have warned.
But that’s not necessarily bad news for investors.
Ed Yardeni of Yardeni Research said on Yahoo Finance’s “Catalysts” that this is a buying opportunity for investors.
“Market sell-offs related to geopolitical or domestic political crises may actually be buying opportunities,” Yardeni said. “The market will continue to focus on what matters most – the economy. If politics impacts the economy, it will naturally impact the stock market.”
Former President Donald Trump walks to make comments to members of the media after a jury found Trump guilty of a felony count of falsifying business records in a scheme to illegally influence the 2016 election, Thursday, May 30, 2024, at Manhattan Criminal Court in New York. (Associated Press Photo/Seth Wenig, Pool) (The Associated Press)
Investors may be thinking that President Trump’s ruling is inconsequential after Friday’s weak market reaction, but the calm may not last long.
As the election begins to really come into focus, the VIX, known as the fear index, “will likely see strong price action” by mid-summer as it starts to show clues about how markets will react to different election outcomes, said Kim Wallace, senior managing director at 22V Research.
In the past two elections, the summer convention season “has been one of the first big market moves of the election cycle,” Goldman Sachs strategists Dominic Wilson and Vicky Chan wrote in a recent note.
The Republican National Convention is scheduled to begin in Milwaukee on July 15, followed by the Democratic National Convention in Chicago on August 19.
The VIX has remained subdued so far this year: The CBOE Volatility Index closed below 12 last month for the first time since 2019, but remains well below its historical average of 19.9.
With Election Day about five months away, investors are beginning to evaluate which candidate would be better for stocks.
Markets appear to be cheering the possibility of a Trump victory this fall, according to analysis by Adam Turnquist, chief technical strategist at LPL Financial: The correlation between the S&P 500 and Trump’s chances of winning the election has increased significantly in recent months.
Conversely, Biden’s election odds have been negatively correlated with the market since February.
Comparing investor sentiment to past performance, the market has historically performed better under Democratic presidents: Ryan Detrick, chief market strategist at the Carson Group, told me earlier this year that the S&P 500 has risen an average of 11.5% when a Democrat is in the White House, compared with 7.1% when a Republican is president.
According to industry experts, the key policy areas influencing the market include fiscal policy, taxation and regulation, geopolitics, etc.
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If his campaign promises are any guide, a Biden victory in November would likely lead to greater investment in clean energy and manufacturing, expanded health insurance, and lower prescription drug costs.
Policy shifts that could move markets under a Trump administration include an extension of the 2017 tax cuts, a promise to “unlock domestic energy production,” and plans to impose a 10% tariff on most imports and a 60% tariff on Chinese imports, which Wall Street and policy experts told Yahoo Finance could spook markets and fuel inflation.
“Trump is widely seen as the best candidate for markets because of his deregulatory policies, but there are real concerns about what will happen from a trade policy perspective,” Isaac Boltanski, director of policy research at BTIG, told me.
Evercore ISI’s Sarah Bianchi, who served as deputy U.S. trade representative under Biden, warned that markets have not yet priced in the “risk of a Trump 2.0 trade war,” but that could change if Biden continues to lead in the polls.
“We believe Trump 2.0 would mean a return of trade-related market volatility and would not be surprised if markets start to price in some of that risk soon,” Bianchi wrote in a note.
Regardless of who wins the election, Berkshire Hathaway billionaire CEO Warren Buffett is likely still focused on ultra-long-term investing, and the same goes for his son. Listen below to Howard G. Buffett discuss his investing philosophy and his legendary father on Yahoo Finance’s “Opening Bid” podcast.
Shauna Smith is an anchor for Yahoo Finance. Follow Smith on Twitter. Sheena N SmithHave a tip on a deal, merger, activist situation or anything else? Email me at seanasmith@yahooinc.com.
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