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In the aftermath of President Biden's shaky debate performance, financial markets are scrambling to reprice the very real prospect of Donald Trump reclaiming the White House in 2024. And while the knee-jerk reaction could be premature overreaction in some cases, there are legitimate concerns giving investors pause.
Biden's inability to maintain his train of thought and formulate cogent responses during the June 27th showdown has undeniably provided a boost to Trump's chances. The former president now holds mid-single digit polling leads in several key battlegrounds like Georgia and Nevada according to recent surveys. Backing up the data, prediction markets like PredictIt have seen Trump's odds surge from an underdog to around 60% favorite for victory.
This seismic shift in political odds hasn't gone unnoticed by markets. Although the S&P 500 has continued grinding higher since the debate, other areas are already starting to price in shifting landscapes and policy pivots under a potential second Trump term:
The Bond Market's Worries: Perhaps the biggest immediate reaction has come in bonds, with the closely-watched yield curve inversion steepening as fears rise around future economic growth and inflation under Trump's leadership. Longer-dated Treasury yields have slipped relative to shorter-term rates, exacerbating a signal that has been a reliable predictor of incoming recessions.
Sector Impacts: Bank of America has identified potential winners and losers so far - with rate volatility bets, banks and tech stocks outperforming, contrasted by underperformance in longer bonds, homebuilders and renewable energy names. The thinking: Trump policies around tax cuts, deregulation and potentially higher inflation could buoy certain sectors.
GOP Sweep Odds Up: Per BofA's data, betting markets have also rapidly upped the potential for united Republican control of the White House and Congress. Those unified government odds have spiked to 36%, raising the chance of conservative legislative priorities advancing.
Of course, there are arguments that markets may be getting ahead of themselves in overreacting to one event. Biden remains in the race and still holds a reasonable chance of being the Democratic nominee according to PredictIt. Trump's policy platform is still largely unknown, leaving some gaps around how to accurately handicap his potential impacts.
But regardless of whether this proves to be an overreaction or warranted repricing, one thing is clear: The presidential election outlook has been turned on its head, unleashing volatility that could persist for months until the political and policy clouds clear.
Which is why prudent investors need to ensure they aren't allowing this uncertainty to rattle their long-term strategies and retirement positioning too severely. With so many moving parts and scenarios still in play leading up to November, having a trusted financial advisor in your corner is crucial for avoiding costly mistakes.
That's why I'm sharing this important must-read article next: "6 Things NOT To Do When Selecting a Financial Advisor." Working with the wrong advisor can put your nest egg at unnecessary risk, so read through these 6 critical red flags before your next advisor meeting. Preventing years of stress and portfolio underperformance could come down to spotting these hazards in advance.
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6 Things Not to Do When Selecting a Financial Advisor Working with a financial advisor can be a great first step to helping make sure you're on track to reach your retirement goals. But choosing the wrong one could wreak havoc. Be aware of these 6 mistakes when choosing a financial advisor, so you can work to potentially avoid years of stress. See the list. |
