Financial markets were thrown into disarray on Wednesday as investors reacted to the highly anticipated debate between Republican candidate Donald Trump and Democratic Vice President Kamala Harris. Following the debate, betting markets tipped slightly in Harris’ favor, prompting a sharp shift in stock movements.
Shares of Trump Media & Technology Group, which owns the social media platform Truth Social, plunged 13% on Wednesday. Other “Trump trades,” including Bitcoin and cryptocurrency-related stocks, also saw declines. Meanwhile, solar energy stocks, perceived as benefiting from a potential Harris victory, rallied, while healthcare shares retreated.
In a heated exchange on Tuesday night, Mr. Trump and Ms. Harris sparred over major topics such as the economy and immigration, but left investors with little new information on policies that could influence markets. However, prediction markets reacted swiftly, with Ms. Harris’ odds in PredictIt’s 2024 presidential general election market improving to 55 cents, up from 53 cents, while Mr. Trump’s odds dipped from 52 cents to 47 cents.
“There is a general view that Harris won the debate,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. “It’s obviously not a slam dunk for Harris, but the chances of a Trump victory have slipped a bit.”
Market Repercussions
While the debate is certainly on investors’ minds, other factors like economic uncertainty and U.S. Federal Reserve policy also weighed heavily. The S&P 500 recorded its worst weekly loss since March 2023, following disappointing employment data. Despite this, the index remains up by around 15% for the year.
Some market watchers argue that even small changes in perception about the candidates could have a significant impact on an election expected to be decided by a narrow margin in key battleground states. Polling averages compiled by The New York Times show the candidates effectively tied in seven states critical to the outcome.
“The U.S. Presidential debate achieved its goal by providing a decisive edge to one of the candidates in what has been an exceptionally close race,” said Charu Chanana, Head of FX Strategy and Global Market Strategist at Saxo Bank. “Crypto and energy stocks might face headwinds as market sentiment adjusts to the shifting political dynamics.”
Impact on Specific Sectors
Following the debate, shares in Trump-related companies took a noticeable hit. Trump Media & Technology Group, which has become a favorite among retail investors betting on the former president’s success, fell as much as 18%, reaching a post-IPO low of $15.30. Bitcoin, another investment closely tied to Mr. Trump’s political fortunes, dropped by nearly 4%, although it ended the day relatively flat. Stocks of cryptocurrency firms like Riot Platforms also declined.
Conversely, solar energy stocks, viewed as beneficiaries of a Harris presidency, saw gains. The Invesco Solar ETF, which had been down 25% year-to-date, jumped 5% following the debate. Healthcare stocks, such as Humana and CVS Health, also experienced declines, with analysts pointing to concerns over Ms. Harris’ plans to lower drug prices, which could affect the sector.
Policy Uncertainty
Mr. Trump has consistently positioned himself as a champion of lower corporate taxes and tougher trade policies. He has criticized the strong dollar, though some analysts suggest his policies could inadvertently spur inflation, which may in turn strengthen the currency.
Ms. Harris has outlined proposals to raise the corporate tax rate to 28%, up from the current 21%. While some analysts worry this could hurt corporate profits, others believe her presidency could reduce budget deficits, potentially supporting Treasury prices and boosting growth stocks.
“There wasn’t much substantive discussion of policy,” noted Sonu Varghese, global macro strategist at Carson Group. “Ultimately, a lot of the economic policies that we see implemented next year will depend on the makeup of the Senate and the House.”
As the election draws closer, financial markets are likely to remain volatile, with investors keeping a close eye on polling data and debate outcomes.
