The ‘Trump trade’ is taking off as he closes in on victory

Markets are moving in anticipation of a Donald Trump victory in the US presidential election.

Investors are piling into the Trump trade on election night as a second Donald Trump presidency appears all but certain.

Barring any upsets, Trump will reach the 270-vote Electoral College majority necessary to win.

Even before Trump emerged as the likely winner early on Wednesday morning, a strong showing after polls closed resulted in the Trump trade — which has for months hinged on the former president’s election odds — gathering momentum.

Central to the trade are Trump’s plans for a near-universal tariff — which would likely accelerate inflation — and mass deportations.

“The so-called ‘Trump trade’ is in full swing this morning,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said in a note.

“The US yields are pushing higher on expectation of further debt ballooning under a Donald Trump presidency. Bitcoin hit a fresh record. In the traditional currency markets, the US dollar is rallying against most majors.”

Here’s a rundown of how markets are moving in response to Trump’s apparent victory:

Treasury yields are sharply higher

The benchmark 10-year Treasury yield climbed 13 basis points to 4.42%, the highest since early July. The two-year yield — the most directly sensitive to Fed monetary-policy changes — gained 6 basis points to 4.25%.

A Trump victory is viewed as an inflationary event, which would fuel higher prices and wage growth.

Investors have been pricing in higher yields for weeks on the view that Trump’s policies would make it hard for the Fed to lower rates much further, especially if inflation flares.

The strong reaction in the Treasury market “suggests that bond investors are putting the election result, and the economic consequences of a Trump victory, ahead of the Federal Reserve, even though the Fed is expected to cut interest rates this week and embark on a rate cutting cycle for the next year,” Kathleen Brooks, research director at XTB, said in a morning note.

The US dollar surged

The Bloomberg Dollar Spot Index was up 1.6% after gaining as much as 1.7% — the most in four years. The greenback climbed against every G10 currency, including gains of 1.8% and 1.6% against the euro and yen, respectively.

The dollar also rose 2.6% against the Mexican peso. The currency cross has been seen as a bellwether of Trump’s election chances, given his expressed desire to “reshore” Mexican manufacturing back to the US.

The expected inflationary nature of Trump’s policies would likely push interest rates higher and could prompt the Fed to tighten monetary policy, despite its current easing efforts. Those climbing rates would then underpin further dollar gains.

“The election outcome strengthens the existing USD bull case, with US economic growth set to continue outperforming that of peers for the foreseeable, and participants not especially perturbed by the Fed’s rapid pace of policy normalisation,” Michael Brown, senior research strategist at Pepperstone, said in a morning note.

Stock futures moved higher

Supporters of Trump’s proposed tax and regulatory policies view them as pro-business moves that would boost corporate profits and deal activity.

S&P 500 futures were up 1.8%, while Dow Jones Industrial Average futures were up 2.1% and Nasdaq 100 futures rose 1.6%.

“Stocks markets so far like the clarity of the Trump win this morning and futures are pointing to a firm open,” Neil Wilson, chief market analyst at Finalto, said in a morning note.

Traders’ positive reaction also reflected their broader optimism about the US economy.

“Economic growth continues to be strong, earnings growth throughout Q3 reporting season has been solid, and the forceful ‘Fed put’ continues to underpin sentiment,” Pepperstone’s Brown said.

“Now, with electoral uncertainty having been removed, the course is clear for further gains to take the market into year-end,” Brown added.

In London the FTSE 100 rose 1.5% in morning trading, while Frankfurt was 1.3% higher and Paris jumped almost 2%.

Small-cap stocks spiked

Futures on the small-cap Russell 2000 index rose 4.8% as of 3.18 a.m. in New York. They are viewed as getting an outsize boost from Trump’s protectionist policies, since they generally have more domestic operations.

Bitcoin hit a record high

The cryptocurrency set a new high above $75,000 before retreating to around $73,000. A Trump win is seen as bullish for bitcoin and the broader cryptocurrency industry, as Trump has firmly embraced digital assets in recent years.

“For many, bitcoin is a hedge against currency devaluation and inflation, as it operates outside of traditional monetary policy constraints,” Naeem Aslam, chief investment officer at Zaye Capital Markets, said in a morning note.

“With Trump’s win, the conditions may be right for Bitcoin’s price to continue its ascent as investors seek alternatives to the dollar,” he added.

Trump Media also traded higher

Trump Media and Technology Group shares rallied more than 10% in after-hours trading. The stock has enjoyed a meme-like rally in recent weeks as the former president strengthened his position in betting markets and the polls.

Still, it’s a highly volatile stock, closing more than 10% higher or lower in five of the last six days. Last week fell 40% over three days as Harris’ election odds surged on promising early polling.