The stock market may have its blinders on at the moment as to the threat of President Trump — and his signature tax cuts — going away on Election Day in November.
And because of those blinders, the market could easily be in for a sharp selloff in the months before the election if it becomes increasingly clear that Trump will lose. “I’m getting concerned that the market is under-appreciating the risk that Trump loses,” said veteran trader and founder of Sevens Report Research Tom Essaye on Yahoo Finance’s The First Trade.
Essaye added, “I mean the revelations, the ex-administration officials that have come out with crazy claims and things like that, I mean, I think investors are getting a little bit numb to them. Every time we think it can’t get any weirder, it gets weirder.”
But perhaps investors should be more sensitive. given the administration is taking on heavy fire right now from multiple sides and the president’s approval ratings are on a steep decline.
In a new book titled ‘The Room Where it Happened’, former Trump national security advisor John Bolton alleges that Trump asked China President Xi Jnping to buy agricultural products in an effort to help his re-election. Farmers have long been Trump supporters.
Bolton also alleges improper handling by Trump of military aid to Ukraine. And then in an interview with ABC News on Thursday, Bolton said the president isn’t “fit” to be in the position. Trump struck back on Bolton’s claims on Twitter, in trademark form.
When Wacko John Bolton went on Deface the Nation and so stupidly said that he looked at the “Libyan Model” for North Korea, all hell broke out. Kim Jong Un, who we were getting along with very well, went “ballistic”, just like his missiles - and rightfully so....— Donald J. Trump (@realDonaldTrump) June 18, 2020
But Bolton’s revelations now heap more pressure onto a White House dealing multiple crises, including concerns on how it has handled the COVID-19 pandemic and expressing a lack of sympathy to a nation grieving after the murder of George Floyd by police.
The firestorm of negative headlines for the president has widened Democratic presidential contender and former vice president Joe Biden’s lead for White House. Biden currently leads Trump 50.5% to 41.3% in a new poll conducted by long-time pollster Nate Silver of ThirtyFiveEight.
Throughout all of this, the stock market has powered ahead by more than 40% from the March 23 lows. In June alone, the S&P 500 and Dow Jones Industrial Average have tacked on a decent 1.5%, while the Nasdaq Composite has gained 4%, per Yahoo Finance Premium data. The rally in June has been fueled by some of the most riskiest names in the market such as Netflix (up 7.3%) and upstart electric truck company Nikola (up 106%).
The upward momentum underscore’s Essaye’s concerns that investors are overlooking what a Trump loss would mean for markets.
“The big issue from the market standpoint is the election — it has to do with taxes. If Biden wins, you can expect that the corporate tax environment will get less favorable. That’s bad for earnings. That’s a headwind on markets. I think there is general political risk. I think we have to get closer to November before it begins to push on stocks though,” Essaye cautioned.