Hello viewers, welcome to “Qin Peng Observation.”
Today’s focus: Trump concept trading returns, what investment opportunities do you have?
Before the big fight, Europe is voicing readiness to welcome the US trade war but also prepared for a cost—a trade-off with China.
Will the golden decade of the US stock market come to an end? Elon Musk and Goldman Sachs analysts see it this way.
Today’s episode on investment and the economy continues to be an exclusive program for a clean world. Please follow my clean world and YouTube account in the comments section. I will have an exclusive program in a clean world every week. Thank you!
The US presidential election in 2024 is underway. From polling alone, both sides are still in a stalemate.
However, in recent times, the market has sent clear and stable signals. Since September 23, the stock price of Trump’s media technology group has risen by 140%; Bitcoin prices have risen; small-cap stocks have soared; the Mexican peso has fallen, and US bonds have declined.
This scene occurred earlier this year when Trump briefly led Biden. The market calls it the “Trump concept investment” or “Trump trade,” and it is making a comeback now. As October progresses, with several October surprises that have not favored Biden, the scales are tipping towards Trump. According to the US online political betting site PolyMarket, Trump is even leading by 20 percentage points.
Some believe this is not directly related to the election but more due to favorable US employment data and the Fed’s 50 basis point rate cut, leading to a bullish market. However, more Wall Street analysts think four factors prove the return of the Trump trade:
1. Trump’s media technology group (DJT.O) stock has seen the largest increase. Since its listing this year, its stock price is believed to closely follow Trump’s fate.
2. Recent beneficiaries of rising stock prices include US private prison operators Geo Group (GEO.N) and CoreCivic (CXW.N), up by about 18% and 10%, respectively. Trump promised to crack down on illegal immigration, potentially increasing demand for detention centers.
3. The Mexican peso, seen as most vulnerable to Trump’s high tariff plans, dropped by 4% from its September peak. Trump previously announced imposing tariffs of up to 200% on cars imported from Mexico.
4. Trump announced strong support for cryptocurrency and plans to make Bitcoin a reserve asset for the US federal government. Since October 10, Bitcoin prices have risen by 12%, with a 10% increase as of this Monday.
Additionally, a clear signal is seen from Goldman Sachs, tracking potential winning trading strategies for both parties, showing an increase in Republican-related stocks and a decline in Democrat-related stocks.
For specific sectors and industries, assets worth noting that Trump may gain from include:
– Companies highly dependent on income from China, such as Nvidia Corp., Broadcom Inc., and Qualcomm Inc. Material companies like Air Products and Chemicals, Sherwin-Williams, and global industrial companies like Owens Corning may be impacted. However, due to AI being likely to be encouraged under the Trump administration, favorable factors are expected to outweigh unfavorable factors for a period.
– Oil, natural gas, and traditional energy companies are seen as potential beneficiaries if Trump wins, as he vows to lift restrictions on domestic oil production.
– Companies in clean energy and electric vehicles that could benefit under the Biden administration may face challenges under a potential return of Trump. Companies at risk if Trump cancels tax breaks for buyers include Tesla, Rivian, Lucid, battery manufacturers, and component suppliers.
– Given that defense spending will be a clear priority for the Republicans, defense stocks are expected to perform better under Trump. Stocks worth watching include Lockheed Martin, Northrop Grumman, and RTX. Similarly, prison stocks and some firearm manufacturers’ stocks may rise.
Media companies, besides Trump’s Truth Social benefiting from his potential re-election, Rumble Inc., in which Soros Fund Management holds a stake, may also benefit.
Notably, gold prices have seen a significant rise to historical highs recently, while oil remains weak, creating a stark contrast to the trend seen after Trump’s victory in 2016 of gold falling and oil rising.
Gold is one of the best-performing commodities in 2024, with a year-to-date increase of over 30%. A commodity analyst at Bank of America predicts gold prices will reach $3,000 per ounce at the beginning of the year.
Regarding oil prices, J.P. Morgan’s commodity research department forecasts Brent crude prices to average $80 per barrel in the fourth quarter of 2024, $75 per barrel in 2025, and possibly slightly above $60 per barrel by the end of 2025.
However, the overall performance of the US stock market remains challenged. Warren Buffett’s recent actions have raised doubts in the market.
Berkshire Hathaway has been selling US bank stocks for several months. As of September 30, Buffett’s stake in US banks has dropped to 9.97%. This means he no longer needs to disclose trades every two working days but only quarterly. With stock prices dropping, followed by Bank of America announcing a stock buyback last Tuesday, Buffett’s company then sold over $382.4 million worth of Bank of America stocks, lowering its stake back below 10%.
Market opinions on Buffett’s move vary. Some believe it’s due to sky-high cash reserves in his possession, combined with Apple cutting its holdings in half, indicating concerns about overvalued US stocks, an impending US economic recession, long-term downward trends in the US, among other unfavorable factors. Others think Buffett is waiting for a major market decline to buy back.
Elon Musk weighed in on Buffett’s move, suggesting he anticipates some form of adjustment, as he cannot see any investment better than Treasury bonds. Musk’s comments hint at his belief in an imminent correction and consensus on Buffett’s actions.
On October 18, top Goldman Sachs strategists revealed that as investors pivot towards bonds and other assets for higher returns, the US stock market is unlikely to maintain its above-average performance over the past decade.
David Kostin, chief US stock analyst at Goldman Sachs, and others predict a nominal total annual return rate of 3% for the S&P 500 over the next ten years, compared to 13% in the last decade and an 11% long-term average.
They also suggest that by 2034, there’s a 72% chance that the S&P 500 will lag behind US treasuries and a 33% chance it will lag behind inflation.
Nevertheless, the latest Bloomberg Market Live Pulse survey shows investors expect the US stock market rally to continue until the end of 2024.
In late September, David Kostin also predicted the S&P 500 index would hit the milestone of 6,000 next year, less than a 5% increase from current levels.
The biggest uncertainty regarding Trump’s potential second term lies in his imposition of high tariffs to rejuvenate US manufacturing and its consequences.
The Wall Street Journal believes a return of Trump to the White House would completely reshape the global trade system. In his first term, Trump used tariffs as a negotiating tool to force other countries to reach trade deals with the US. While this approach led to more friction in the global trade system, it remained intact.
In his second term, elevated tariffs may not only be a negotiation tool but an end goal in itself. Consequently, in the short term, some US goods’ prices may rise, affecting economic growth. Long-term effects could range from an all-out trade war to the US and its allies uniting against China collectively out of dissatisfaction, potentially forming a new trade system.
Currently, nobody knows how high tariffs Trump will impose on China or the scale of retaliatory measures from other countries.
However, the good news is that in Trump’s first term, he used tariffs to force North American partners and South Korea to agree to amend NAFTA and Japan to lower barriers to US agricultural products. The bad news comes from conflicting signals from Trump’s advisers. Scott Bessent, a former CIO of Soros Fund Management now serving as a Trump adviser, suggested in a Bloomberg interview in July that Trump’s tariff plan won’t be implemented all at once but gradually, with other countries possibly opening up their markets.
Robert Lighthizer, Trump’s trade representative in his first term, believes the goal of imposing tariffs should be to eliminate the US trade deficit. This could indicate the US may impose high tariffs indefinitely, even if other countries make concessions. Trump has stated that higher tariffs will increase government revenue, thereby enabling reductions in other taxes, implying a long-term tariff approach.
The most closely watched region is arguably the European Union (EU). Politico’s European edition recently wrote that the EU’s strategy in response to Trump’s trade war will be to react swiftly and strongly.
European diplomats and officials, in interviews with Politico, indicated that EU leaders have learned lessons from Trump’s first term as president. They plan to stand more united and firm against him than ever before.
One European diplomat said, “We will hit back fast, we will hit back hard.”
In 2018, when Trump first imposed steel and aluminum tariffs on the EU, Brussels was caught off guard and retaliated only partially in the hope of easing tensions. However, Trump did not accept this olive branch and later threatened to impose tariffs on EU automobiles.
“Last time we didn’t believe Trump would actually go that far,” said the first senior diplomat. “This time we have time to prepare. Europe has changed a lot, and we are ready to take action.”
A second senior diplomat from another European country confirmed that EU members are coordinating their strategies, led by the European Commission. “Brussels has a list ready, and they are confident they can win this trade war.”
The EU has even set up a rapid response team, referred to colloquially as the “Trump Task Force” by EU officials. However, the purpose is to prepare for wins from either US political party as they expect a trade war between the EU and the US regardless of who wins. For instance, the brief truce on steel and aluminum between the two in March next year is set to end.
However, the EU’s ultimate goal is to reach an agreement. Officials told Politico that EU leaders intend to inflict significant pain to force Trump to negotiate immediately with the EU from a more favorable position. The harsher the retaliation, the faster Trump will be brought to the negotiating table.
EU leaders believe Trump may be tough on tariffs but is also eager to negotiate. “Essentially, he is a dealmaker,” a third diplomat said, referencing Trump’s renegotiation of the NAFTA with Mexico and Canada, and trade talks with South Korea, Japan, and China.
Officials suggest part of the negotiations will focus on closer cooperation between the EU and the US on China-related issues.
“If Americans genuinely want to work together against China, they should be a lot friendlier with Ursula,” said the first diplomat, referring to Ursula von der Leyen, the President of the European Commission.
In essence, the real casualty in a clash between the two superpowers may be the faraway Chinese Communist Party. So, how will it all unfold? With the US election day approaching, let’s wait and see.
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