How much is a Donald Trump win priced in?
A lot, judging by the performance of stocks that could benefit from a Republican win versus a Democratic one.
Investing prodigy Stan Druckenmiller, founder of Duquesne Family Office, said earlier this week that the market seems “very convinced Trump is going to win,” highlighting the recent price action in crypto and bank stocks.
Bank stocks have done quite well recently — both outright and relative to the market — but there are a couple of factors that muddle the link between their performance and Trump’s electoral prospects. Recent economic data, like retail sales on Thursday and the robust nonfarm payrolls report from the start of the month, have quelled fears that the US economy is on the cusp of a recession. Adding to that, earnings results from America’s biggest financial institutions have been positive. Over the past month, 18 of the 20 banks that reported have exceeded analysts’ profit estimates.
So, one way to get a cleaner read on how the market is feeling about the election is to take a broader look at the performance of a basket of stocks, selected by Goldman Sachs, that are presumptive beneficiaries of Republican policy priorities compared to companies that stand to gain more from the Democrats having political power.
Now, prediction markets are relatively new and seem fairly prone to being jolted by the whims of a few big-money players. But the stock market is much more efficient and liquid. And since the start of June, whatever’s happened in one of these markets has seemingly been mirrored in the other.
Prediction markets and the stock market are singing from the same hymnal.
