While the events of this weekend were shocking, there is a long way to go until ballots are cast and investors are grappling with a still incredibly dynamic economic and market environment
The contentious nature of U.S. politics was on solemn display on Saturday as former President and soon to be Republican presidential nominee Donald Trump was struck by a bullet in an assassination attempt at a rally in Butler, Pennsylvania. Former President Trump was rushed quickly to safety after shots were heard, and while he was treated for an injury to the upper part of his right ear and released, the shooter and a bystander at the rally were killed. Two other audience members were critically injured. President Joe Biden addressed the nation from the Oval Office on Sunday evening in response to the act, calling for Americans to “take a step back”, acknowledging that the “political climate in our country…has gotten very heated.” He urged Americans that “we must never descend into violence.” For his part, former President Donald Trump heaped praise on his Secret Service protectors and called on the public to “show our True Character as Americans.”
Politically, the violent act is likely to provide momentum to the Trump campaign, igniting further support for him from his base and perhaps even some undecided voters who still perceive him as an outsider to the Beltway. The incident comes on the heels of a challenging first debate for President Biden and a NATO address that, while more convincing of Biden’s fitness of office than the debate stage, was still not enough to assuage concerns from within the Democratic party that Biden may not be the best choice to beat Trump in November.
Market reaction has aligned with the above assessment that this weekend’s event puts Trump on stronger footing. Equity markets are trading higher based on expectations that a second Trump term will potentially bring a recommitment to the 2017 tax cuts as well as a modestly lower corporate tax rate, and a less restrictive regulatory environment, all of which have the potential to buoy equity prices. President Biden, conversely, is likely to propose a sharp increase in the corporate tax rate, an increase in taxes on the energy industry, and potentially higher tax rates on capital gains.
It bears mentioning that campaign promises are often broken and that similarities exist between the two candidates as well. Protectionism as executed via restrictive tariffs is back in vogue, which, unfortunately, in our view, is likely to be inflationary and not nearly as additive to domestic growth as either candidate will message. In addition, in aggregate, neither candidate appears to be overly focused on spending less in Washington, just spending differently. Immigration is also an area of increased coalescence, with both parties looking to better protect the Southern border despite evidence that the influx of immigrants over the last several years has helped to alleviate a massive supply-demand mismatch in the U.S. labor market.
In short, while the events of this weekend were shocking, there is a long way to go until ballots are cast, and investors are grappling with a still incredibly dynamic economic and market environment. Attention is likely to shift now to earnings season which kicked off last week with the financials and will reach a crescendo the week of July 22 as most of the largest global technology companies report. Focus will then pivot later this month to the Federal Reserve, which meets in late July and then mid-September and is likely at this point to vote for the first rate cut in this cycle well before we go to the polls in November.
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