In the 11 days since President Joe Biden declared he wouldn’t seek a second term and Democrats united behind the candidacy of Vice President Harris, strategies seen benefiting from a win by Donald Trump have lost steam. The dollar has stagnated, Treasuries have rallied and Bitcoin has slid. 

Polls now suggest a dead heat between Harris and Trump in swing states, handing markets a harsh reminder on the risk of betting on political events. Just weeks ago, an assassination attempt and doubts over Biden’s age were seen as helping Trump, who is seen embracing looser fiscal policy, higher trade tariffs and softer financial regulation if he returns to the White House.

“We have seen some Trump trades unwinding,” Neeraj Seth, chief investment officer and head of APAC fundamental fixed income at BlackRock, said in a Bloomberg Television on Thursday. “We’ll go back and forth between now and the fifth of November.”  

The markets aren’t solely reacting to the electoral outlook. Fed Chair Jerome Powell acknowledged this week the central bank could pare rates in September, also pushing investors to favor Treasuries and doubt the dollar. That signaling is likely to annoy Trump, who recently told Bloomberg Businessweek a rate cut just weeks before the vote is something officials “know they shouldn’t be doing.”

What Bloomberg’s Strategists Say…

“Investors have received a cautionary lesson in the dangers of underestimating how rapidly political landscapes can shift. The more likely outcome, especially with the Fed putting a rate cut on the table for next meeting, is for trades tied to US politics to go to sleep until September ends.”

— Garfield Reynolds, MLIV Asia team leader. Click here for more

Here’s a rundown of how the Trump trades are faring:

Bond Trades 

Focus in the world’s biggest bond market has recently been more tied to monetary policy then politics. Treasuries rallied to cap a third-straight month of gains in July — the longest winning streak for US bonds in three years — after Powell spoke on Wednesday.

That runs counter to one iteration of the Trump trade, which posits the Republican’s return to the White House would likely lead to tax cuts and add to the national debt, casting a shadow over longer-dated Treasuries.

However, a favorite way to express that concern, via bets on a steeper yield curve, remains a good play for traders thanks to the Fed’s shift toward cuts. An easing Fed is likely to support a so-called bull steepener, where short-dated Treasuries rally more than bonds with further-out maturities.

BlackRock’s Seth sees the Fed policy path as “more important” from a 12-to-18 month time horizon, rather than trying to speculate on where the elections are going.

“We are moving toward the easing cycle, that’s unambiguous,” he said.

Dollar

A gauge of the US dollar has stalled since Biden pulled out of the race. 

Some traders had been wagering that the dollar would rally into a Trump victory on the premise that it would benefit from a haven bid before the election and then from trade tariffs thereafter. 

But that bet got a lot more complicated when Trump weighed in last month to argue that a highly-valued greenback is a “tremendous burden” on US companies, and chose strong-dollar skeptic and Ohio Senator JD Vance as his running mate. 

Roughly two-thirds of respondents to a Bloomberg MLIV Pulse survey conducted between July 22 and 26 said they expected a second term for Trump would ultimately undermine the greenback as the world’s reserve currency. Still, 26% saw the dollar as the best refuge from volatility if he were to win.

Given the competing impulses, the Fed’s shift is arguably the more consequential driver for the dollar going forward. The Bloomberg Dollar Spot Index suffered its worst day in more than two months on Wednesday as Powell confirmed the central bank’s growing bias toward easing.

A softer dollar is “the path of least resistance until the election outcome reduces the uncertainty associated with post-election trades,” Steven Englander, head of global G-10 FX research at Standard Chartered, wrote Thursday. 

Stocks 

Prison companies GEO Group Inc. and CoreCivic Inc. are expected to benefit in case of a Republican sweep, given Trump’s tough stance on immigration. 

But their shares have slid since Biden dropped out of the race. 

By contrast, gun stocks like Smith & Wesson Brands and Sturm Ruger & Co. are faring well so far.

Bank stocks — which have been called out as a key potential beneficiary from a Trump administration because of optimism for regulatory relief — have largely held on to their July gains amid the broader market’s rotation trade.

Meanwhile, Trump Media & Technology Group Corp., parent of Truth Social, has slumped over 20% since July 21. The stock had seen some wild swings lately among all the election headlines.

“What was viewed as a cake walk has become very competitive leading many to question whether the Trump Trade was done a bit premature,” said Peak Capital Management CEO Brian Lockhart. “I expect there to be a lot of ‘noise’ in the markets that will likely mean higher levels of volatility through the election.”

China Risk 

Belying expectations the yuan will be hammered as Trump trades gather momentum, the offshore unit strengthened 1% against the dollar in July — the best performance since November. Recent gains in the yuan have been partly driven by a surge in the yen, with the two currencies increasingly moving in lockstep.  

Investors agree that Chinese assets remain at risk regardless of who wins the election, though they’ll likely fare worse under Trump. The former president has floated slapping 60% tariffs on imports from China and 10% duties from the rest of the world. 

Harris may continue existing national security and industrial policy measures directed against the world’s second-largest economy. The developments can favor regions like India and defensive stocks such as Asia REITs, which are less exposed to trade risks and stand to benefit from a lower rate environment, said Ray Sharma-Ong, head of multi-asset investment solutions for Southeast Asia at abrdn. 

Cryptocurrencies

Rising doubt that Trump will get a chance to implement his pro-crypto agenda has undermined Bitcoin in recent days. 

The original cryptocurrency has become something of a proxy for Trump’s odds of returning to the White House after he pledged to make the US the “crypto capital of the planet and the Bitcoin superpower.”

Crypto stocks Coinbase Global Inc., Marathon Digital Holdings Inc. and Riot Platforms Inc. have also fallen since Biden dropped out.

Kyle Doane, head of trading at Arca, said some of the recent Bitcoin weakness may be due to Harris “inching up in the polls.” 

Harris Trade 

Unlike the Trump trade, strategies associated with a Harris win have been touted less so far. With the expectation that she will inherit Biden administration’s policy stance, market watchers are placing more weight on macro drivers. 

“We would favor more bullish positioning on Asian equities on unhedged basis if Harris wins, since Harris is unlikely to introduce large inflationary shocks to the global economy,” said Homin Lee, senior macro strategist at Lombard Odier Singapore Ltd. “The core drivers of the ongoing disinflation in the US will be preserved.” 

For abrdn Plc, the Harris trade has yet to emerge because it’s not clear what the composition of the US Congress will be. 

“Should we get a blue wave in Congress, we expect the Democrats to push for the reintroduction of their pandemic-era child tax credits and an increase in corporation tax,” Sharma-Ong said. “This will be a drag on the bottom line of corporates, and markets will favor stocks with strong margins.”

For some, it’s just too early to play the Harris trade. 

“Her lead, for now, isn’t due to anything she has done but rather because nothing has been done or initiated, leaving room for optimism to grow,” said Hebe Chen, an analyst at IG Markets in Melbourne.