The Pomp Letter - The Trump Trade Is On
Today’s letter is brought to you by Domain Money!Wondering where to go for financial advice? Domain Money makes financial planning simple. No hidden fees and no sales pitches - you get a personalized roadmap to your goals, from dream vacations to retirement. Flat-fee advisors create a plan tailored to you, with zero pressure to invest. Don’t be like most people who’ve never had a real conversation about their financial plan. Book a free strategy session today here. While I'm not a Domain Money client and they are paying me, I've seen first hand the value of their service through the free plan they did for one of my brothers. Yes, I might have an interest in promoting Domain Money, so just like any major financial decision, it's important you understand what the service is and if it's right for you so make sure to see this important disclaimer. To investors, The market is starting to price in a President Trump victory in November. To understand the perceived “Trump Trade,” we must first remember that Trump’s odds of winning the election has now reached at least 69%. Next, we must understand how the proposed policies and likely Trump victory would impact assets, industries, and markets. The best description I have seen came from Alex Kruger, a well-known economist and trader from Argentina:
The idea of a Trump Trade is not theory though — you can see it starting to show up in the data. Take the Russell 2000 as an example. Hannah Miao of the Wall Street Journal points out the small cap index has lagged the S&P 500 significantly for the last 6 months, but that has drastically changed in the last few days. The Russell 2000 has almost fully caught back up to the large cap index now. This is not the first time that we have seen something like this occur — investors showed a relative strength in small caps vs tech back in 2016 when Trump was elected and they are showing the same relative re-rating over the last few days as well. This can also be illustrated by those going long Russell and short Nasdaq 100, according to Holger Zschaepitz. Additionally, you can see that industrial stocks have doubled the performance of the S&P 500 in the last three trading sessions. John Melloy at CNBC highlights a rapid change in future interest rate expectations by traders as well. Melloy writes:
Prediction markets like Kalshi are also showing a significant increase in interest rate cut expectations recently. Odds now stand at 81% for a rate cut by September according to the market. Bitcoin, one of the best free market signals that we have, has increased in price by more than 13% over the last 7 days. This type of strength has historically been reserved for significant changes in investor expectations, which is obviously happening as Trump’s odds of victory continue to grow. So market participants are expecting interest rate cuts and the odds of Trump winning are kickstarting re-allocation of assets in various parts of the market, but I want to give a word of caution — we have seen plenty of false starts on various trades or trends in the past. For example, the Russell 2000 strength may disappear if these companies can’t produce the earnings necessary to support the current excitement. Interest rates will remain sticky with one hot inflation reading. And bitcoin can be volatile depending on who is tweeting at any given time. While it can be fun and exciting to try nailing the Trump Trade, the best investing strategy is usually to think long-term, minimize your trading/decision-making, and chill. Hope you all have a great day. I’ll talk to everyone tomorrow. -Anthony Pompliano Founder & CEO, Professional Capital Management Reader Note: Today is a free email available to everyone. If you would like to receive these letters each morning, please subscribe to become a paying member of The Pomp Letter by clicking here. Kian Sadeghi is the Founder & CEO of Nucleus Genomics. In this conversation, we talk about DNA sequencing, how he is disrupting the old school companies, why he believes so much in giving power to the people, taking control of your health with your DNA, regulation, ethics, and more. Listen on iTunes: Click here Listen on Spotify: Click here Nucleus CEO on Genetics Behind IntelligencePodcast Sponsors
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