Cross-Asset Markets Show Confidence in Trump

Cross-asset markets are anticipating a Donald Trump victory and Republican sweep in the upcoming US elections, according to Barclays strategists.

Market Reaction

This expectation has resulted in stronger equity inflows and performance. However, Barclays cautions about potential short-term volatility or downside reversals if the election results are unexpected.

Future Outlook

The strategists believe that post-election clarity amidst positive US growth and a global easing cycle could trigger increased investor activity. They point out that:
– November-December seasonality trends are positive.
– Buybacks will resume after blackout periods.
– High cash allocation provides investors with purchasing power.

Equity Futures Positioning

CFTC data reveals that equity futures positioning by asset managers is at its highest since early 2020. Yet, the National Association of Active Investment Managers (NAAIM) notes overall active manager exposure hasn't reached summer's peak levels, indicating mixed sentiment among investors.

Investor Sentiment

Despite recent equity rallies, investor sentiment remains cautious, with many adopting a wait-and-see approach ahead of the elections. The fear-greed indicator dipped slightly but remains above average. The American Association of Individual Investors (AAII) bull-bear index also shows settled sentiment at average levels.

Trading Volumes

Barclays reports that limited investor participation was evident during the US equity rally, with S&P 500 trading volumes notably lower in October compared to previous election years. Similarly, trading volumes in Europe have been weak throughout the year.

Bond Exposure and Risks

While bonds have seen reduced exposure due to rising inflation expectations—benefiting equities—there are concerns that stocks may not remain unscathed if bond vigilantes react to fiscal issues. Rate instability is viewed as a key risk heading into 2025, but current economic surprises and solid earnings present a safety net for equities.