The financial market is slowly beginning to digest the possibility of a possible reversal of the US presidential election situation. Although it may be premature to call the debate between Biden and Trump a turning point, the current president's indecisive performance has changed people's views on the direction of the election.

In polling data and forecast markets, Trump has become the clear leader. At the same time, there is still a possibility in the election that Biden may not even become the nominee for his party in November. This has left investors in a dilemma, not knowing how to judge what Trump's election as president will look like from an economic and market perspective.

Mark Malek, Chief Investment Officer of Siebert AdvisorNXT, said:"Earlier this week, as Trump's support increased, people began to speculate that a Trump victory would mean medium- to long-term inflation exacerbation and a possible slowdown in the economy, which is why the yield curve of US Treasury bonds has slightly steepened and why long-term US Treasury bonds were under pressure earlier this week."

"We will keep a close eye on this, as there is currently no clear direction, but we feel that the market is beginning to try to figure out these questions."

So far, the reaction of US stocks has been relatively mild, with the S&P 500 index continuing to steadily climb to a new high since the last trading day after the debate, up about 1.5%.

However, the reaction of the US bond market has been much larger. The yield on the benchmark 10-year US Treasury bond has gradually declined, and more importantly, it has further fallen below the yield of the 2-year US Treasury bond. This phenomenon, known as an inverted yield curve, almost invariably signals an economic recession, although the current inversion began in July 2022 and an officially recognized recession has not yet occurred. In the days following Trump's debate, the phenomenon of curve inversion intensified, indicating growing concerns about the economic outlook.

Michael Hartnett, Chief Investment Strategist at Bank of America, said that the winners will be bets on interest rate fluctuations, steepened yield curves, banks and the technology industry, while the losers include long-term US Treasury bonds, home builders, renewable energy stocks and emerging market currencies.

Trump's first term as president and his campaign rhetoric have led to speculation about what might happen in the future. Ed Mills, a Washington policy analyst at Raymond James, wrote in a report:"Market pricing for the continuation of President Trump's 2017 tax cuts and potential deregulatory agenda is beginning. This is particularly favorable for the financial industry as more mergers and acquisitions are expected to be approved during Trump's term. We also need to closely monitor the possibility of more inflation policies being introduced."

Inflation has been a major issue facing Biden, with the consumer price index rising more than 19% during his term, compared to less than 8% during Trump's tenure.

Biden's poor performance in the debate has sparked criticism, with some members of Congress and the mainstream media calling on him to withdraw from the race. As of Monday afternoon, Trump's likelihood of winning was around 59%, according to PredictIt data.

However, Biden has firmly stated that he will stay in the race, which has caused fluctuations on betting sites, with his odds of winning reaching 29%, compared to Vice President Harris's 15%. Currently, PredictIt gives Biden a 56% chance of becoming the Democratic nominee, while Harris has dropped 12 percentage points to just 31%.

TD Cowen's Washington strategist Chris Krueger called this week a "test" for Biden and his candidacy. Krueger wrote,"Biden is still assumed to be the nominee... at least for now," and likened Biden's performance in Friday's interview to the "Anti-Blonde Effect": just good enough to stay in the race, but not good enough to allay voters' concerns about his agility."

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