Wall Street on Alert for Biden Exit as Trump-Win Trades Mount

In a two-day span starting late last week, 10-year yields rose by about 13 basis points relative to 2-year rates, in the sharpest curve steepening since October.

Signs of traders bracing for near-term volatility in the Treasury market emerged Wednesday, through a buyer of a so-called strangle structure, which benefits from a move higher or lower in futures through the strike prices.

Along with potential risk over the holiday weekend around Biden’s candidacy, the expiry also incorporates Friday’s US jobs data and testimony next week from Fed Chair Jerome Powell.

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Stocks Gain

The prospect of a Trump victory has supported myriad stocks that stand to benefit from his perceived stances on the regulatory environment, mergers and trade relations. The broad market has powered higher in the wake of the debate.

The turn in the electoral tide since last week has “meant higher stocks as Republicans are generally viewed as more business friendly,” said Tom Essaye, president and founder of Sevens Report.

Health insurers UnitedHealth Group Inc. and Humana Inc. and banks stand to benefit from looser regulations. Discover Financial Services and Capital One Financial Corp. are among credit card companies that have risen on optimism over Trump, given that pair’s pending deal and speculation around possible changes to late fee rules.

Energy stocks like Occidental Petroleum Corp. rose after the debate, given the former president is seen as having a pro-oil stance. Private prison stocks like GEO Group Inc. have reacted to his perceived tough-on-immigration views.

Financials ETFs

The exchange-traded fund market has shown one clear investing strategy of late: Long banks on bets that Trump will spur deregulation and a steeper Treasury curve thanks to his potentially inflationary agenda.

The Financial Select Sector SPDR Fund (ticker XLF), a $40 billion fund, last week saw its largest inflow in more than two months, with investors adding roughly $540 million. So far this week, they’ve added $611 million amid the latest gyrations in the interest-rate market.

Meanwhile, a thematic-investing strategy designed to ride the Trump trade has struggled to gain traction.

An ETF that sports the eye-catching ticker MAGA and invests in Republican-friendly stocks has been slow to garner assets and hasn’t seen any material inflows this year, data compiled by Bloomberg show.

Crypto Support

Trump has shown support for the crypto industry in recent weeks by meeting with industry executives and promising he would ensure all future Bitcoin mining is done in the US.

That makes the Solana token — the fifth-largest cryptocurrency with a market capitalization of about $67 billion, according to CoinMarketCap — one potential beneficiary of a Trump return to the White House. Asset managers VanEck and 21Shares have filed for ETFs that would directly invest in the digital currency.

While many consider approval a long shot, the thinking among some market participants is that a newly re-elected Trump would appoint a Securities and Exchange Commission chair who is more crypto-friendly than Gary Gensler has been under Biden. That’s an outcome that would make a Solana ETF — and a corresponding rally in the token — more likely.

The prospect of a shakeup to the Democratic ticket is also likely to boost Bitcoin, according to Stephane Ouellette, chief executive of FRNT Financial.

“The crazier that the U.S. political system looks, the better that Bitcoin looks,” Ouellette said “This is the kind of vibe that Bitcoin would go for. Craziness in the US political system is a pro-Bitcoin factor.”

(Credit: Bloomberg)