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Investors Eye Reactions to US Presidential Debate

Investors Eye Reactions to US Presidential Debate

Thoughts on the Market vor 2 Jahren

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3:22

Our Global Head of Fixed Income recaps the aftermath of the first
U.S. presidential debate, and how markets may react if
forthcoming poll data shows a meaningful shift in the race.

----- Transcript -----

Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan
Stanley's Global Head of Fixed Income and Thematic Research.
Along with my colleagues bringing you a variety of perspectives,
today I'll be talking about the US elections and its impact on
markets.

It's Tuesday, July 2nd at 10:30am in New York.

For months, investors have been asking us when markets will start
paying attention to the US presidential election. Well, we think
that time arrived with last week’s Presidential debate.

The media coverage that followed revealed that many Democratic
party officials became concerned about President Biden’s ability
to win the November election. This understandably led many
to ask if the race for the White House had meaningfully changed;
If it was no longer a close one – and if so, what would that mean
for markets that might have to start pricing in the impacts of a
Trump Presidency.

On the first question: While we think it's too early to conclude
that the race is no longer a close one, we expect some data in
the next week or two that could clarify this. The few polls that
have been released following the debate show that voters are
increasingly concerned about Biden’s ability to win; but they
also show a level of support for Biden similar to what he enjoyed
before the debates.

What we haven’t seen yet is a set of high-quality polls gauging
swing state voter preferences. And even modest deterioration in
Biden’s support there could meaningfully boost Trump’s
prospects. That’s because, going into the debate, polls
showed former President Trump with a small but consistent lead in
national and key swing state polls.

Nothing outside the polling margin of error. But it still
suggested that for President Biden to improve his odds of
winning, he’d be served well by having a strong debate
performance that moved the polls more in his favor.

It doesn’t appear that this has happened, and if polls show
movement in the other direction for Biden, it would be fair to
think of Trump as something of a favorite. But only for the time
being. There’d still be time and catalysts for the race to
change – including another scheduled debate in September.

If we do end up with a race where Former President Trump is a
more clear favorite, even if just for a short time, there could
be reflections in the market. As we’ve previously discussed, a
Trump win increases the chances of more of the expiring tax cuts
being extended. The benefits of those cuts most clearly accrue to
key sectors like energy and telecom, so there’s potential
outperformance there.

In fixed-income – a steeper US Treasury yield curve is an outcome
our macro strategy team is particularly attuned to. That’s
because a Trump presidency brings greater uncertainty about
future fiscal policy, which could be reflected in relatively
higher yields for longer maturity bonds. But it also increases
the chances of policy choices that create near term pressure on
economic growth that could push shorter maturity yields
lower. This includes higher tariffs and tighter immigration
policies.

So bottom line, the markets are paying attention. And the
race is sure to have many more twists and turns. We’ll keep
you updated on how we’re navigating it.

Thanks for listening. If you enjoy the podcast, please leave us a
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