The assassination attempt against former President Donald Trump has raised many questions over the impacts it may have on the election as well as markets.
John Hancock Investment Management Co-chief investment strategist Matt Miskin joins Wealth! to give insight into the potential impact of the election on the broader market and what other factors are driving trading.
Miskin argues it markets are more impacted by deficit spending rather than who wins: “It all comes back down to greater deficit spending, and this isn’t whether it’s Republican or Democrat, really in the last eight years, regardless, it’s been increasing deficit spending so that in theory, increases Treasury supply, increases Treasury yields.”
He continues with: “So you’ve seen the long end of the Treasury yield curve increase… the 30-year’s actually uninverting from the 2-year for the first time in a long time. So that usually had meant weakness on small caps, weakness on financials. And now the thought is less regulation on small caps and financials that actually helps those parts of the market. So it’s a big change actually underneath the hood of the market here as politics move to more of the front and center as a market driver.”
For more expert insight and the latest market action, click here to watch this full episode of Wealth!
This post was written by Nicholas Jacobino
Video Transcript
Sticking with the 2024 election and the possible impact to markets.
We have Matt Miskin, who is the John Hancock Investment Management, Co Chief Investment strategist, Matt.
Great to grab some time with you here this morning.
Uh I would love to start with just knowing how you’re looking at the events from the weekend and in the context of the market.
So we’re going into today seeing small caps continue their epic rally and really they started rallying on the inflation report which was gonna be a lower interest rate regime.
So thought was inflation comes down rates come down that help smaller cap companies then have greater leverage, lower interest rates.
Good.
Today we’re coming in with a bear steep and our rates are up and small caps are still ripping.
So we’ve gone from last week being a lower rate, lower inflation regime to the Trump trade, which is small caps and a bear steepener.
And that’s breaking a key dynamic that had been really embedded in this market.
Small caps and treasuries were as correlated as they’ve ever been in history running up to this.
And so we are starting to get political uh input into markets.
We do not see this as sustainable.
We do not invest based on politics because it is incredibly unpredictable.
And even if you had gotten Trump last, last time he was president, right?
The winners of the overall four years of his administration were large cap growth, tech and Chinese stocks, not small caps.
And so when you look at history here, it doesn’t suggest that this kind of rotation may not get further legs.
Um So we just want to be understanding that it’s a trade likely.
Um but overall the fundamentals, we think favor more larger cap, higher quality type businesses.
You know, it’s interesting and you started to, to mention this, the elements perhaps of the Trump trade as, as you’re tracking them.
What is the composition of that?
Yeah, it all comes back down to greater deficit spending.
Um And this isn’t, you know, whether it’s Republican or Democrat really in the last eight years, regardless it’s been increasing deficit spending.
So that in theory increases treasury supply increases treasury yield.
So you’ve seen the long end of the treasury yield curve increase that yields going up to 30 years actually un inverting from the two year for the first time in a long time.
Um So that though then usually had meant um weakness on small caps, weakness on financials.
And now the thought is well, less the less regulation on small caps and financials that actually helps those parts of the market.
Um So that’s a, it’s a big change actually underneath the hood of the market here as politics move to more of the front, front and center uh as a market driver, let’s turn to some broad things that you’re looking at this week as well.
Inflation, corporate earnings as I’ve been continuing to track some of the data that comes out from, from Factset on a weekly basis.
Just thinking about at this very early stage, they are of the second quarter earnings even for the S and P 500.
It is off to somewhat of a mixed start and we got of course, Black Rock Goldman Sachs here to begin the week.
What is the the theme that you’re expecting to play out over the course of this earnings season?
Yeah, Brad, it’s still about winners and losers right now.
And as you pointed out, some of these companies that are reported first, um are are higher quality businesses that are taking market share.
Um and they’ve actually been doing well and the stock price is already up a lot going into earnings.
So, you know, to us, it’s it’s gonna be a bit of um show me, show me something good here uh because it’s already in your price.
And that’s another thing broadly, you know, you’re talking about seeing this economic data last week was Soft Landing Island, um grab a drink and chill out market environment.
So you had initial jobless claims fall and inflation fall.
So you had better economic data decelerating inflation.
That is the best case scenario.
Um And what we’re also seeing is even though there’s all this political uncertainty, there’s another fed rate cut now priced into the back half of this year.
So the thought is the feds gonna cut rates three times now in the back half of this year, that’s actually providing a nice buffer for volatility and likely helping equities as well into this week.
When you talk about winners and losers are there certain sectors that you expect to continue either outperforming or to finally catch up to the broader trade over the course of this earning season.
Yeah, we do see parts of the market seeing some catch up.
We do like mid cap industrials.
They’ve seen great uh fiscal policy support in terms of building up the manufacturing renaissance across the US.
They’re more us focused, which is actually helping their businesses.
Um But in terms of the high quality tech side, you know, for us, it is likely to deliver good results, but it’s in the price and that’s also tough because fundamentally you’re saying, hey, this is a great business, but look, it’s up a lot.
It might actually see some selling pressure if there’s any whiff of a miss, whether it’s for guidance, whether it’s revenue uh or even the bottom line.
Matt, great to speak with you.
Great to see you.
Thanks so much for taking the time here with us on Yahoo Finance John Hancock Investment Management, Co chief investment strategist, Matt Miskin.
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