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The markets saw the debate too

Here’s their verdict.

6/28/24 3:22PM

It’s always a bit dangerous to try to ascribe specific reasons for any particular market move. But it seems pretty obvious that the shockwaves from Thursday’s US presidential debate are emanating through financial markets on Friday.

Popular opinion suggests that the debate had a decisive winner: Donald Trump.

Just look at how Goldman Sachs’ themed basket of stocks that should do well under a Trump administration is doing today compared to a similar basket of stocks that should benefit from a Democratic White House. It’s outperforming by more than 3 percentage points, the most this year.

On PredictIt, the odds of Trump winning the 2024 presidential election rose from 54% before the debate to as high as 64% during the event.

“President Biden and his team now have much more work to do to win re-election than Trump,” writes Kim Wallace, head of Washington Policy Research at 22V Research. “Biden flubbed softball opportunities from questioners and Trump, shocking Democrats and likely many non-Democrats as well.”

Here’s some of what we’re seeing in markets.

Solar sell-off

The most glaring stock-market reaction seems to be in shares of companies that would benefit from policies associated with Democratic priorities. Solar firms like Maxeon Solar Technologies, Sunnova Energy and First Solarare getting creamed as traders seem to be pricing in higher odds of Trump 2.0.

End of Obamacare?

Likewise, health-insurance companies that’ve built large businesses around the Affordable Care Act’s insurance plan exchanges are also suffering Friday. Oscar Health, HCA Healthcare and Tenet Healthcareare all taking it on the chin.

Prisons, private education, and coal companies romp

Conversely, companies investors think will do well under a Republican administration surged on Friday; foremost among them were private prison companies GEO Group, and CoreCivic (formerly Corrections Corporation of America), as well as private education firms such as Grand Canyon Education, and private college operator Laureate Education. Finally, coal companies Peabody Energy and Arch Resources had very good days, as some price in roll backs of climate-related Biden administration initiatives.

GSE reform back on the agenda

During his term, Trump backed attempts to privatize the government-sponsored entities Fannie Mae and Freddie Mac. Shares of both are up roughly double digits on Friday.

RIP, Fed independence?

Perhaps the most notable reaction of the day isn’t in the stock market, but rather in the market for US Treasury bonds. Despite really good news on the inflation front — the Fed’s key measure of inflation dropped more than expected to its lowest level since March 2021 — longer-term Treasury bonds tumbled, pushing yields, which move in the opposite direction, sharply higher.

Since long-term bonds typically rise when inflation comes down, this is a bit odd. It seems, at least to me, that some people are pricing in the long-term effect of a second Trump term on the “full faith and credit” of the United States.

Trump allies’ reported plans to fiddle with the Fed’s traditional independence from direct political control would explain some of that move. Efforts, typically by quasi-or-outright dictatorial governments, to control monetary policy usually works out horribly both for investors in those country’s bonds and for the country itself, as surges of serious inflation — see Turkish, Hungarian or Russian inflation rates in recent years — follows from printing money for political reasons.

Of course there are varying explanations for the move in US Treasury yields. The inflation data, though positive, was well telegraphed before its release and in line with economists’ expectations.

And the market could also be pricing in the potential for better growth thanks to more fiscal stimulus in the event of a united Republican government, or higher inflation because of Trump’s tariffs.

Speaking of Russia

One can’t help notice that the ruble — which really isn’t traded on markets much anymore — and Russian stocks were up slightly on the day. Hard to say why, though Trump’s friendliness toward the Kremlin could translate into easing the sanctions the world imposed on Russia for invading and occupying eastern Ukraine, or a potential end to the conflict — as Trump promised would happen if he wins the election, even before his term begins.

Currency confusion

But of course not everything in markets can be perfectly congruent. The most common Wall Street prognostication is that a Trump presidency would lead to a stronger US dollar (primarily because of the risk of tariffs). But the greenback is slightly lower on the day, as judged by the Dollar Spot Index, and lower against every G10 currency besides the Norwegian krone.

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Nate Becker & Matt Phillips11h

Oil drops, yields fall, and stocks rise on reports the US has sent Iran a plan to end war

Oil, stock, and bond markets flipped as investors continued to digest the latest reports on a potential wind-down of the war in Iran, with The New York Times reporting that the US has sent Iran a 15-point plan to end the conflict.

Crude oil futures dropped sharply, from around $92 a barrel to about $88.50. Yields on two-year and 10-year Treasurys dropped, and the SPDR S&P 500 ETF shot up after-hours.

From the Times:

“The United States has sent Iran a 15-point plan to end the war in the Middle East, according to two officials briefed on the diplomacy, reflecting the Trump administration’s eagerness to find an offramp from the conflict as it grapples with its economic fallout.

It was unclear how widely the plan, delivered by way of Pakistan, had been shared among Iranian officials and whether Iran was likely to accept it as a basis for negotiations. Nor was it clear whether Israel, which has been bombing Iran together with the United States, was on board with the proposal.

But the delivery of the plan showed that the administration was ramping up efforts to conclude a war, now in its fourth week, that has drawn in several other countries.”

Some individual shares had outsized reactions to the news in the postmarket session. Gold miners Freeport-McMoRan and Newmont, which have been battered since the war started, rose. Ammonia maker CF Industries — which had risen on expectations of rising prices for fertilizer products linked to the closure of the Strait of Hormuz — fell.

US natural gas producers such as APA Corporation, EOG Resources, Devon Energy, and Diamondback Energy also declined after-hours.

The Times report also said that “for now, there is no indication that the war will let up imminently.”

United States Said to Have Sent Iran a Plan to End the Middle East War

Crude oil futures dropped sharply, from around $92 a barrel to about $88.50. Yields on two-year and 10-year Treasurys dropped, and the SPDR S&P 500 ETF shot up after-hours.

From the Times:

“The United States has sent Iran a 15-point plan to end the war in the Middle East, according to two officials briefed on the diplomacy, reflecting the Trump administration’s eagerness to find an offramp from the conflict as it grapples with its economic fallout.

It was unclear how widely the plan, delivered by way of Pakistan, had been shared among Iranian officials and whether Iran was likely to accept it as a basis for negotiations. Nor was it clear whether Israel, which has been bombing Iran together with the United States, was on board with the proposal.

But the delivery of the plan showed that the administration was ramping up efforts to conclude a war, now in its fourth week, that has drawn in several other countries.”

US natural gas producers such as APA Corporation, EOG Resources, Devon Energy, and Diamondback Energy also declined after-hours.

The Times report also said that “for now, there is no indication that the war will let up imminently.”

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Luke Kawa, Max Knoblauch12h

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Stocks close lower after fluctuating as traders digest war updates

Stocks pared steeper losses on hopes of US-Iran talks, but were unable to maintain gains on reports that the US is deploying 3,000 troops to the Middle East.

Matt Phillips13h

Amid Mideast conflict, investors cling to faith in the AI build-out

Data center build-out stocks showed impressive resilience to the slump that hit big indexes Tuesday.

In fact, construction companies, server system makers, fiber-optic technology stocks, and memory makers — all cornerstones of the AI trade — were having a pretty good day, suggesting the market sees the wave of AI construction continuing, war or no war.

Optical stocks seen as crucial to efficiently transmitting the flood of information AI data centers both produce and depend on were surging. Corning, Lumentum, Coherent, and Ciena Corp. ramped.

Server rack makers HP Enterprise and Dell jumped. Construction and engineering companies like Sterling Infrastructure, MasTec, and Comfort Systems USA, which have benefited from the growth in building data centers, posted solid gains.

Hard disk drive makers Seagate Technology Holdings and Western Digital were also positive, though other memory plays such as Sandisk and Micron were in the red.

It was an impressive display of positivity on a day when the S&P 500 (SPDR S&P 500 ETF) and the Nasdaq 100 (Invesco QQQ Trust) were both fluttering between positive and negative territory for completely understandable reasons.

After all, the 82nd Airborne is heading to the Middle East, suggesting the US is considering sending troops into Iran. US crude oil is back above $90 a barrel and climbing, as the Strait of Hormuz remains essentially shut.

Additionally, the problems in the private credit market continue, with major fund managers preventing investors from withdrawing all the money they would like to. We even had a weak auction for US two-year Treasury notes — investors seemed to think the offered yield might not be sufficient to offset inflation risks stirred up by the war — that sent short-term interest rates up sharply.

But apparently it will take more than all that for investors to worry that the AI build-out may be halted, delayed, or even just trimmed back.

Nate Becker17h

Stocks get a bump on CNN report that Iran is willing to listen to proposals to end war

Stocks got a small bump midday Tuesday as CNN reported on what appeared to be a softening in Iran’s position toward ending the war in the Middle East.

The S&P 500 briefly turned green following the report, before paring some of those gains in the afternoon.

From the CNN report:

“An Iranian source told CNN on Tuesday that there had been ‘outreach’ between the United States and Tehran and that Iran is willing to listen to ‘sustainable’ proposals to end the war.

‘There has been outreach between the United States and Iran, initiated by Washington, in recent days, but nothing that has reached the level of full-on negotiations,’ the source said. ‘Messages have been received through various intermediaries to scope out whether an agreement to end the war can be reached.’”

Markets had zoomed Monday as President Trump said there had been discussions between the two nations, but they gave back some of their gains after Iran starkly denied the claim. Markets seemed to read this new reporting as a softening of Iran’s position.

Iranian source says there has been US "outreach" and Tehran "willing to listen"

“An Iranian source told CNN on Tuesday that there had been ‘outreach’ between the United States and Tehran and that Iran is willing to listen to ‘sustainable’ proposals to end the war.

‘There has been outreach between the United States and Iran, initiated by Washington, in recent days, but nothing that has reached the level of full-on negotiations,’ the source said. ‘Messages have been received through various intermediaries to scope out whether an agreement to end the war can be reached.’”

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