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Trump Indictment: Potential Market Implications?

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There has been wall-to-wall news coverage around the world of Trump’s pending arrest later today. The media has been tracking his plane from Florida to New York with more attention than NORAD’s reports of the whereabouts of Santa on Christmas. But, is there anything in this event for traders?

One, albeit superficial, potential consequence is similar to what happens during the world cup: People get distracted, trading volume drops, and there are more chances of market “errors”. This is a week that is already slow, with few major data releases, a shortened trading session because of Easter, China going on holiday, and Spring Break. All of that could spell wider swings in the market and more irrationality.

Beyond the political drama

As for the specific case itself, there has been quite a bit of hype. It is certainly unprecedented that a former President would get arrested. However, beyond the distraction from other events that could directly impact the markets, Trump’s arrest doesn’t appear to have any immediate effects on market expectations.

There certainly is some rampant speculation about how the indictment could affect Trump’s chances of securing the Republican nomination and from there going on to win the election. However, the primaries are only just starting, and the election isn’t until next year. That is far too into the future as far as the markets are concerned to shift around one’s portfolio. Especially since between now and then there is still an expected recession with considerable doubts about how hard or soft the landing will be.

The data matters, but so does politics

While the media has been distracted (and distracting) over the Trump situation, there have been some important shifts in the data that have shifted the market. Yesterday, there was a general trend towards risk off, after ISM Manufacturing had the worst showing since 2020. This dragged on the dollar, and the Atlanta Fed’s GDPNow forecast was radically downshifted. Before it was predicting a 3.2% annualized boost to the economy in Q1. Now it’s forecasting Q1 GDP at just 1.7%.

However, the stock market went up despite the negative news. The gains were driven by two key sectors. Energy companies, and particularly Chevron, saw a boost after OPEC+ agreed to cut production by 1.66M bbl/day in May. And healthcare companies got a boost following positive resolutions on Medicare payouts. Both of those events were political, and enough to drag the market higher despite the disappointing data. So, even if there are no expected immediate impacts from a political event, the market reaction shouldn’t be totally overlooked.

With politicians focused on the drama in New York, other geopolitical factors that could have a more direct impact on the markets are getting less attention. Taiwan’s President is still due to meet with House Speaker McCarthy, which could heighten tensions with China. That after it was revealed the spy balloon which captured media attention a while ago and has since been forgotten, did actually do some spying. Treasury Secretary Yellen was supposed to visit China soon in order to help ease tensions over that incident. We’ll see what happens.

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