Markets set to pitch and lurch to the tune of Donald Trump and Kamala Harris

The markets are in a lather. Investors love certainty and, until Sunday, there was a high probability that Donald Trump would become the next president of the US.

Then, Joe Biden made his historic announcement and suddenly, the jitters set in. All those stocks, currencies, bonds that were thought to benefit from the return of Mr Trump, paused or went into reverse. At the same time, those that would profit from a Democrat triumph, rose.

It’s fascinating to watch - my lack of spare cash and sheer nervousness precludes me from actively participating, plus in the media we have a code of behaviour for this sort of thing and it would not do for me to be tipping a share I held or rubbishing a company where I had a short position.

But as an observer, it tells you much about how the contenders are perceived and where their proclivities lie.

With Mr Trump, eco was a non-starter. Major oil was rubbing its hands. So too, were the banks and tech. In fact, any commercial sector that could justifiably use the prefix ‘big’ was looking forward to his second term.

He was seen to be firmly on the side of the corporate giants, in the thrall of large numbers and returns, of their shareholders and owners, not ordinary consumers. Mr Biden, by contrast, was pro-green, and anti-big.

One of the ironies was that those right-on tech entrepreneurs whose personal beliefs were so wedded to the left were likely to see their company’s activities heavily restricted by a second Biden administration.

It was not just stocks. The Mexican peso climbed as investors absorbed the news that Mr Trump was no longer likely to have it all his own way.

These were the initial moves. Then, the polls showed that Mr Trump was still in the lead. On the back of that, the 10-year Treasury bond yield jumped again, having previously fallen.

Speculators were judging that Mr Trump’s plans to cut tariffs and taxes would drive inflation.

Market swings

Bank stocks also see-sawed. There again, the expectation was that Mr Trump would slash regulation and wave through mergers and acquisitions. Down they went on the Biden withdrawal, back up they moved as it emerged that Mr Trump remained to the fore.

Heavy exporters had seen their values fall in recent months on the strength of Mr Trump and his supporters pursuing an “America first” policy. So, back they also came - Citigroup’s “foreign earners” basket of shares rose 1.2 per cent, while its “domestic earners” was flat.

It’s hard to know which is the chicken and the egg - the markets or the polls. Fund managers pay small fortunes to political analysts to stay ahead of political developments - keeping up with them is not good enough, they must be predicting what will unfold and of course, getting it right.

The markets of course are not purely devoted to the election ups and downs and the eventual outcome. Other factors come into play: the Chinese economy is suffering, which is weighing heavily on boardrooms around the world; the war in Ukraine shows no sign of abating, which continues to threaten energy supplies to some major European economies; Europe remains turbulent, with the rise of the far right; France, soon to host the Olympics, is in a particular mess.

Meanwhile, climate change constantly exerts its presence, wiping out crops and wrecking business and lives.

Trump trades

These factors, and more, contribute to the wider investment picture. But in recent weeks, a new phenomenon has swept the markets. “Trump trades” - moves made specifically in anticipation of a Trump victory in November.

The likelihood of a Trump second term following Mr Biden’s disastrous performance in their TV debate was such that entire strategies were being based on a Trump shoo-in.

Companies were also rethinking how they behaved or rather, what they took seriously. “Woke” had slipped back down the agenda. Under Mr Trump, it would have been a virtually banished term.

Several companies unwound their “DEI” - diversity, equity and inclusion - and “ESG” - environmental, societal and governance - credentials. They had included DEI and ESG as measures in their executive bonus calculations but under pressure from Trump followers and fund managers had reduced their importance.

The re-emergence of Ms Harris, however, has changed all that. When she was appointed Mr Biden’s running mate four years ago, Ms Harris was branded the DEI choice, due to her ethnicity and gender. Then the abuse died down as Ms Harris slipped into the background.

Woke is back

Suddenly, on Sunday, DEI was back as Republicans resurrected all their old tropes about her.

Woke, DEI and ESG are very much at the top of the agenda again, as Democrats fight back and make them a central battleground.

Some firms had gone further and scrapped their involvement in cultural campaigns and causes. Even the use of the once ubiquitous identifying pronouns at work had been barred.

Again, all in the belief that there would be a shift away from them with Mr Trump reinstalled in the White House.

Now, though, it would be a brave company indeed that announced it was ditching its woke policies and views and risk incurring the wrath of the resurgent Democrats.

The steady progress towards a Trump triumph is no more. We’re in for a much closer, likely nastier fight, one that tilts in one direction then another.

Investors, companies, it might be time to think again and to sit tight until there is a single clear winner.