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With the US presidential election just over a week away, most major polls, including the latest Bloomberg/Morning Consult poll, show Vice President Harris and former President Trump in a dead heat. But Wall Street seems increasingly convinced Trump is going to win. And that is manifesting in what’s come to be called “The Trump Trade.”Today on the Big Take podcast, Bloomberg Opinion’s John Authers sits down with host David Gura to break down what the trade is, and what it reveals about how Wall Street sees this election and the future of the economy.

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• Prediction Markets Reflect That the Clock Favors Trump (Bloomberg Opinion)
• Druckenmiller Says Market Is ‘Very Convinced’ Trump Will Win

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Here is a lightly edited transcript of the conversation:

David Gura: The election is only about a week away, and while most major polls — including the latest Bloomberg/Morning Consult poll — show Vice President Harris and former President Trump are running neck and neck, Wall Street’s become increasingly convinced Trump is going to win. And that conviction is manifesting itself in what’s come to be called ‘The Trump Trade.’”

Bloomberg TV Archive: … the Trump trade, as some have been calling it…

Bloomberg TV Archive: … the so-called Trump trade…

Bloomberg TV Archive: … we see those gains from the Trump trades who are the winners and who are the losers…

Gura: Investors are effectively betting on a Trump win — in the stock market, in the bond market, in currencies and crypto. Bloomberg Opinion’s John Authers says he’s never seen anything like it: Wall Street paying such close attention to a presidential election.He compared what is happening now to his first election he covered in the US — Dole vs Clinton in 1996.

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John Authers: I actually spoke to somebody at one of the large firms. Two days later who said, did Clinton win? And wasn’t embarrassed when I said, yes, he did. I mean, there was, you couldn’t tell anything about that election from prices before it happened or after. This is so different from that.

Gura: It’s hard to overstate, John says, how much things have changed since then.

Authers: It’s a very interesting, difficult, flammable situation. The level of interest is unusual and it’s pretty extreme.

Gura: I’m David Gura, and this is the Big Take from Bloomberg News. Today on the show: “The Trump Trade” and what it tells us about how Wall Street sees this election, and the future of the economy.

Gura: What is the Trump trade? What exactly is Wall Street betting on?

Authers: Okay, the Trump trade, very broadly, it’s positive bullish on stocks and negative bearish on bonds. At present, it seems to be predicated on the belief that even though a Trump presidency will be negative for bonds, it won’t be so negative. It won’t push up yields so much that it derails the stock market. So that’s basically the Trump trade: a belief that Trump is going to win and that what he does will be expansionary. And that it’s also going to boost growth and help the stock market.

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Gura: Could I ask you how people are playing this in a few different asset classes? So you mentioned stocks.

Authers: Yes.Gura: I would guess that there would be people who think, “Oh, this is going to be good for energy stocks, for instance, or financials, perhaps there’ll be less regulation?”

Authers: Yeah, companies that are deemed to be very benefited by logistics, by globalization, have a problem. If you were interested in FedEx, for example, that plainly doesn’t do well when Trump’s numbers are seen to improve. But yes, overall, a Trump win is seen to be good for classic cyclical companies, and it’s not so great for classic defensive staple-type companies.

Gura: How about in the bond market?

Authers: Bond markets generally, there are two animating features here. One is — it’s a cliche, but it is true — that bond markets prefer gridlock. When you have gridlock, when one party in Congress acts as a check on the presidency, generally speaking, the deficit is less likely to get out of control. Supply is less likely to be too heavy. And so that keeps yields lower. The assumption, which I think is probably correct, is that if Trump pulls off the presidency, the chances are overwhelmingly strong that he wins the Senate as well and probably also holds onto the House. So if you have unified government, that’s bad for bonds.

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Gura: John says fixed income investors, like most, are not typically motivated by ideology. They just want to make money. And some are trying to bet on what a Trump presidency might mean for inflation — in both the short-term and long-term.

Authers: It will absolutely, undoubtedly be terrible for inflation in the short term. The total burden on the amount of tariff that will be paid. This is Barclay’s research I’m going from — not, not anything too hyper-liberal. The 2018 tariffs added about two percentage points onto the cost of the imports. The tariffs he’s talking about now, if he really goes through with it, will add 17 percentage points. So this is protectionism on a scale not seen since the Great Depression. And if you are a company, you will pass that on or pass as much of it as you can on because otherwise your shareholders won’t be very pleased with you. So it is directly inflationary in the short term, I don’t see any arguments against that. If Donald Trump persuades more production to come to the States, if he persuades companies currently operating in China to move their production facilities here in the long term that will definitely be good. But it takes far longer to build a factory than it does to raise a price. And so there is, there is still no way that you avoid an inflationary spike if he really goes through with this. And that will be bad for the bond market.

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Gura: Currency traders are also focusing on what former President Trump has been saying about tariffs.

Authers: The currency traders take it as an absolute given that, particularly if he goes through with those tariffs, that it will be very bullish for the dollar. If the Trump proposals are accurate, that he’s really going to try to deter nearshoring as well, and really try to force people to bring production back to the US, this will mean a very strong dollar. You then get into the issue— as is so often the case, you need to start thinking in terms of a chess player and what the next moves will be. If, as is likely, you get a startling strengthening of the dollar, which makes it that much harder for US exporters, presumably, the next response either will be, okay, maybe these tariffs aren’t such a great idea, or what can we do to push the dollar lower? Now, one possibility, which is not particularly positive for the markets, is that we then have a President Trump trying to impinge upon the Fed’s, Fed’s independence to get rates down when they would otherwise rise and weaken the dollar, which for any number of reasons would really terrify people. The other possibility, given that Trump at least put his name to a book called The Art of the Deal, is that you could try to have a grand deal to weaken the dollar.

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Gura: That’s happened before, when Ronald Reagan was the president. But the world’s changed a lot since then, and John says it would be hard for Trump to broker an agreement like that today. Coming up, how the Trump trade has evolved, how it’s playing out in prediction markets, and what happens to the Trump trade when we find out the outcome of the election. That’s next.

Gura: Another place where you can see investors betting on a Trump win is in the ‘prediction markets.’ Today, they exist on sites like PredictIt and the Iowa Electronic Markets, where people can bet on the outcome of the election. But Bloomberg Opinion columnist John Authers says prediction markets have a long history.

Authers: Prediction markets have been around for an extremely long time. There used to be thriving prediction markets in papal conclaves in the 15th and 16th century.

Gura: Who’s going to be the next pope?

Authers: Who is going to be the next pope?

Gura: Yeah.

Authers: Cardinals would tell their attendants who, who was leading, and they would rush out and put bets on it with the traders out there on the streets of Rome. And the betting markets could be surprisingly accurate. And the money that was involved was, you know, multi millions in today’s, today’s terms because obviously Renaissance Rome, who was going to be the next pope really mattered.

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Gura: Mattered, yeah.

Authers: And there were prediction markets writing on the floor of the New York Stock in, for many decades at the beginning of the 20th century.

Gura: Today, another one of these prediction markets is called ‘Polymarket.’

Authers: It’s a big and liquid market. Officially, Americans can’t trade there, which ought to be a very big red flag.

Gura: Warning sign.

Authers: There can be some extra dispassionate attitude that can come from not actually being American.

Gura: In recent days, a Polymarket user who goes by “Fredi9999” on the site has bet more than $45 million on a Republican victory. He’s been identified as a French national, with “extensive trading experience and a financial services background,” according to Polymarket. And John says — one thing that sets Polymarket apart is that, unlike other prediction markets, there’s no limit on what you can bet.

Authers: It’s a more liquid market. You can also express your conviction more easily because you can bet more. Polymarket, like any market, if somebody enters with a really big bid, it will move, which is what happened after Elon Musk told everybody, look at Polymarket, isn’t it wonderful.

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Gura: John’s talking about a post Musk made on X in early October in which he praised prediction markets as being quote “more accurate than polls as actual money is on the line.”

Authers: The last time I checked when we were recording this, I think Polymarket put the odds on Trump winning at 62%. That’s more than a one in three chance that Kamala Harris is the next president, according to Polymarket. You wouldn’t bet your life on this. And that’s, to some extent, the point where a prediction market has its advantage. You see the price and then you think, well, I do think Donald Trump is probably going to win, but do I really know that the Democrats don’t have a better ground game, they did last time? Do I really know that the polls aren’t just missing lots of very motivated, angry young women who weren’t voting last time because of the abortion issue? Actually, no, I don’t know that. So, am I really confident enough to bet much more than that? No, actually. We’ll leave it at only about a 60-odd% chance. That is the benefit of prediction markets, that they do capture that. But it’s not the same— there are certainly people who think that Polymarket at 62% for Trump means they think Donald Trump will get 62% of the votes, which would be an absolutely monstrous, historic landslide. No, it doesn’t mean that that isn’t going to happen.

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Gura: I wonder what happens on election day? Say Trump wins, what does that mean for people who have bet on this Trump trade? If he loses, what does that mean?

Authers: In terms of the bond markets, I imagine you would see a big relief rally into bonds, and you would probably see some degree of a sell-off in stock. If you have a Kamala Harris presidency, if‚ and I think this is very unlikely — but if somehow or other, Jon Tester wins in Montana, or Ted Cruz loses in Texas, which would, would make a lot of people in this country extremely happy, but I still don’t quite imagine it happening. If somehow or other, you get a clean sweep for Kamala Harris rather than a checked Kamala Harris, then I imagine the sell-off in bonds would continue. And the stock market would probably not like that very much either. I think the best outcome probably for most asset classes is Kamala checked by the Senate — possibly Kamala checked by the Senate and the House. That would not have any great negative response, I don’t think.

Gura: How good is Wall Street at predicting the outcome of elections if you look at history?

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Authers: Oh, the number of times—

Gura:—as good as the Cardinals?

Authers: Yes, I mean, over history, 2016 the polls were wrong and so were the prediction markets. It was one where, for whatever reason, people just didn’t catch what was happening. Over history, the various prediction markets that were available were better than the Gallup poll over a series of elections. So prediction markets generally are pretty good. Over history, the number of examples of really big sell-offs or booms in response to an election result is pretty minimal, which means that Wall Street is generally not surprised by the results — 2016 being the big glaring exception to that. I think one of the things that’s very difficult is again that you need to know about the chess moves ahead. Like from what we know now, you can say various things about a Harris versus a Trump foreign policy, domestic policy, but broadly speaking, it’s not that obvious how different things would be.

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