Where is the "Trump Trade" heading?

During this period, what may have surprised many people is that despite the 50 basis point rate cut by the Federal Reserve on September 18, U.S. bonds have been unusually weak and the U.S. dollar index unusually strong, with the yields of U.S. bonds $VG Interm Term(BIV.US) and the U.S. dollar index $Wtree Bbg Usd Bull(USDU.US) reaching relative highs from June to July.

Obviously, the rate cut by the Federal Reserve seems to have had the opposite effect: cutting rates has actually led to a higher U.S. dollar and long-term rate expectations. Of course, the relatively good economic data released in October after the rate cut has some factors, but first of all, economic data before the election should be viewed with skepticism, and such a significant increase is clearly not solely due to better short-term economic data.

The reason for the abnormal market rally is actually the possibility of Trump's return to power, as his policy proposals are likely to lead to a second round of inflation:

a. Extending the tax-free period for personal income: The "Tax Cuts and Jobs Act" during the Trump era is set to expire in 2025, but if he returns to office, it is highly likely to be extended;

b. Raising tariffs: He has mentioned that if he returns to office, he is considering imposing a 10-20% tariff on all U.S. imports and a 60% tariff on imports from China;

c. Expelling illegal immigrants.

Without going into details, these policies, the first one is clearly of a deficit-expanding nature, the second is inflationary, and the third reduces labor supply. Overall, regardless of how the Trump team argues, the market believes that it will lead to higher inflation. The market has already pushed the 10-year Treasury yield to nearly 4.3%, indicating that Trump's return to power would likely lead to a second round of inflation.

Furthermore, some are even considering whether the 10-year Treasury yield may head towards 5-6%.

However, looking at the current market pricing for Trump's election, it is mainly concentrated in the bond and commodity markets. Especially in the bond market, with the yield already pushed above 4.2%, if he is elected, it can be said that the trade has been realized at most. The possibility of further elevation is not high (especially if the employment market turns cold, as Bloomberg analysis suggests, if there is negative growth in non-farm employment in October, then it may be a big surprise).

But the stock market pricing for him, apart from a few specific Trump-related stocks, is not very obvious. If Trump is elected, the stock market is likely to face significant volatility.

Therefore, it is crucial to closely monitor the market in the next two weeks:

a. Non-farm data on November 1st (Bloomberg research team expects negative growth), official voting on November 5th during the election, the Fed interest rate meeting on November 7th, and the National People's Congress Standing Committee meeting from November 4th to 8th (which may have conclusions on some fiscal policies).

b. In the first week of November, there are also earnings reports from major U.S. companies.

From an earnings report perspective, Dolphin believes that the impact of major companies is relatively small, and the key lies in the potential changes brought about by the election. Looking at Trump's policy proposals, if he takes office, from the perspective of equity assets, it usually favors traditional industries represented by the Dow Jones, such as energy, and is not very favorable for tech giants. Of course, for Chinese assets, it is also not a good thing.

However, there are two main contradictions for Chinese assets: any possible major inflation measures from the November political meeting, and secondly, the potential impact of Trump's election. Currently, the fundamentals of Chinese assets are still the top priority.

In any case, keep a close eye on the market in the next two weeks and respond promptly. Earnings reports are intensive this week, and the companies covered in the light blue background in the image below are the ones Dolphin will analyze in depth. It is recommended to focus only on the earnings reports of major companies in the LongPort APP. Both the current performance and the outlook for the fourth quarter are equally important, especially the statements regarding AI investment by major companies.