Banking giant JPMorgan Chase has just released its US election playbook for investors.
The bank’s strategists participation The dynamics of the “Trump trade” have become apparent in recent weeks, alongside the surge in former President Donald Trump’s gambling markets.
“Small and mid-cap stocks have outperformed their large-cap peers on hopes of lower taxes and deregulation.
U.S. Treasury yields have risen about 40 to 50 basis points across the curve on expectations that tariffs, lower taxes and anti-immigration laws will be inflationary and keep the Fed on the cautious side. The dollar has gained from recent lows, alongside the rise in bond yields.”
If Vice President Kamala Harris wins, JPMorgan says its recent outlook for a weaker dollar will be strengthened.
“As we discussed a few weeks ago, it is starting to feel like we are on the cusp of a weaker dollar regime. That view of a weaker dollar over the medium term is also something our recently published Long-Term Capital Market Assumptions for 2025 points to.
That will likely be the direction the market moves after a Democratic victory.”
But the bank says things could look very different with a Republican victory.
“Despite the Republican Party’s desire to weaken the dollar, in our view their policies are likely to have the opposite effect.
We continue to see rates and fiscal policy as the main drivers of global currency markets. More government spending and universal tariffs could pave the way for an extended period of ‘American exceptionalism’ to drive up US interest rates and the dollar.”
JPMorgan also predicts the near-term volatility and strength of the US dollar under a Trump victory.
“That initial dollar strength in a Republican victory would likely be concentrated against that of the euro and the Chinese renminbi, given the direct growth impact on both economies from tariffs. For the euro, our estimates suggest that the economic impact of tariffs could weaken the currency by 3-4% against the dollar in the weeks after the election – especially if the recent weakness we have seen in Europe continues.
While the dollar is likely to outperform most peers under a Republican move, other safe haven currencies such as the Swiss franc and Japanese yen would likely be supported. In particular, the Swiss franc was the best performer during the 2019 trade war, and tends to perform well when the European economy is weak. Similarly, sterling’s service-based economy could provide some insulation against rate risks – especially if the UK budget is perceived positively by the market.”
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