Banking giant JPMorgan Chase just released its US election playbook for investors.
The bank’s strategists say “Trump trade” dynamics are clearly playing out over the last couple of weeks, alongside former President Donald Trump’s surge in betting markets.
“Small- and mid-cap stocks have outperformed their large-cap peers on hopes of lower taxation and deregulation.
U.S. Treasury yields have jumped some 40-50bps across the curve on the expectation that tariffs, lower taxes, and anti-immigration laws will be inflationary and keep the Fed on the cautious side. The dollar has gained from recent lows alongside the surge in bond yields.”
If Vice President Kamala Harris wins, JPMorgan says its recent outlook for a weaker dollar is reinforced.
“As we discussed a few weeks ago, it is starting to feel as though we are on the verge of a weaker dollar regime. That view for a weaker dollar over the medium term is also something that our recently published 2025 Long-Term Capital Market Assumptions reference.
That is likely to be the direction that the market moves in under a Democratic victory.”
But the bank says things could look much different under a Republican victory.
“Despite the Republican party’s desire to weaken the dollar, their policies are likely to have the opposite effect in our view.
We continue to see tariffs and fiscal policy as the main drivers for global currency markets. More government spending and universal tariffs could pave the way for an extended period of “U.S. exceptionalism” to drive U.S. interest rates and the dollar higher.”
JPMorgan also forecasts short-term US dollar volatility and strength under a Trump victory.
“That initial dollar strength under a Republican victory would likely be concentrated against the likes of the euro and Chinese renminbi given the direct growth impact on both economies from tariffs. For the euro, our estimates suggest that the economic impact of tariffs could weaken the currency by 3-4% against the dollar in the weeks following the election – particularly if the recent weakness we have seen in Europe persists.
Although the dollar likely outperforms most peers under a Republican sweep, other safe haven currencies like the Swiss franc and Japanese yen would likely be supported. The Swiss franc in particular was the top performer during the 2019 trade war, and tends to perform well when the European economy is weak. Similarly, the British pound’s services-based economy could provide some insulation against tariff risks – particularly if the UK Budget is perceived positively by the market.”
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