At 9 a.m. Beijing time this morning, Vice President Harris, the current Vice President of the United States, will have her first televised debate with Republican candidate Trump after becoming the Democratic presidential candidate.

Recent opinion poll results show that the support rates of Harris and Trump are still evenly matched. In the past, presidential debates had little impact on the market and opinion poll results. However, over two months ago, former Democratic presidential candidate Biden had a disastrous performance in a televised debate with Trump, causing a sharp drop in Biden's support rate. This led to internal Democratic calls for Biden to step down, ultimately resulting in Biden withdrawing from the race. Therefore, the performance of the two candidates in this debate is crucial, and their confrontation is expected to provide more specific information for investors on issues such as taxes, tariff forecasts, government spending, as well as energy, electric vehicles, and healthcare policies that have been analyzed over the past few months.

This Tuesday, the media pointed out that for investors evaluating election risks, the current mood is far more nervous than the debate between Biden and Trump in June. Looking at financial market indicators, the anxiety index VIX, which measures US stock volatility, has once again risen, and Bloomberg's three-month implied volatility index for the US dollar is close to the highest level since the banking crisis in March 2023. Fixed income traders are facing even greater turmoil as the recent mixed economic signals have left them uncertain about predicting the extent and timing of the Federal Reserve's interest rate cuts.

The potential impact of this presidential debate on the market may be "exceptionally" significant, as the result of this debate may lead to the market once again entering into a "Trump trade" or a "Harris trade". Citi strategists Dirk Willer and Alex Saunders also wrote in their Tuesday report that even if the candidates simply reiterate their known positions, it could still focus the market on election-related trading strategies. Trading strategies revolving around a Harris victory have not yet been fully developed, and traders are eager to learn more clues about her political priorities.

Regarding the specific issues that the stock, bond, and foreign exchange markets will focus on during the debate, Wall Street institutions have the following views:

Stock market.

Stock market investors will be watching how Harris and Trump will implement their tax and tariff plans. Trump has called for reducing the corporate tax rate from the current 21% to 15%, and Goldman Sachs estimates that under this plan, if he takes office,$S&P 500 Index (.SPX.US)$The earnings of constituent companies are expected to increase by about 4%. However, Harris proposed raising the company's tax rate to 28%, a plan that could reduce the profits of S&P 500 companies by approximately 8%.

In terms of tariffs, Trump proposed a universal 10% tariff on all imported goods, with higher rates for imported goods from China. The message conveyed by Harris indicates that although she holds similar views, she believes that escalating tensions between China and the United States are of no benefit.

JPMorgan's basket of stocks with high direct exposure to China covers industries such as semiconductors, industry, materials, autos, and medical care. Some noteworthy stocks include$NVIDIA (NVDA.US)$,$Broadcom (AVGO.US)$and$Apple (AAPL.US)$N/A.$Tesla (TSLA.US)$, elevator company$Otis Worldwide (OTIS.US)$And testing analyzer manufacturer.$Agilent Technologies (A.US)$.

A recent analysis by Bloomberg Industry Research identified banks, technology companies, and electric car companies as the businesses most affected by the election, highlighting Fannie Mae as one of them. $FREDDIE MAC (FMCC.US)$,$Morgan Stanley (MS.US)$ The largest cryptocurrency exchange in the United States.$Coinbase (COIN.US)$N/A.$United States Steel (X.US)$and$Tesla (TSLA.US)$N/A.$Centene (CNC.US)$N/A.$Novo-Nordisk A/S (NVO.US)$,$First Solar (FSLR.US)$and $NextEra Energy (NEE.US)$Is the focus of this cycle.

For stock traders, rather than taking sides or even choosing the direction of the market, it is better to bet on increased volatility. Stuart Kaiser, Head of US Equity Trading Strategy at Citigroup, said, "We will focus on volatility rather than market direction in election trading."

The bond market.

After the first debate between Biden and Trump in June, Wall Street began pricing in the possibility of Trump's return to the White House, with one of the most popular trades being a bet on steepening yields. To hedge against the risk of rising inflation due to Trump's tax and trade policies, traders adjusted their positions by aggressively buying short-term bonds and selling long-term bonds. This was the immediate reaction to the "Trump trade" following the first debate.

Rarely have Wall Street bond watchers unanimously agreed that the fiscal outlook for the United States will only worsen in the coming years, and the composition of Congress is crucial in determining spending plans. Despite expectations of an imminent Fed rate cut, the absolute level of US Treasury yields has been declining since June, but investors will still closely monitor any insights from Trump and Harris on fiscal plans. Concerns about deteriorating debt and deficit prospects may accelerate the steepening of the yield curve this year.

Forex market

The currencies of major US trading partners, such as China and Mexico, are most sensitive to Trump's tariff rhetoric during the campaign. In addition to this, Trump's overall attitude towards the value of the US dollar and Harris' stance on this issue are crucial for investors.

Wall Street strategists generally believe that Trump's tariffs will support the US dollar at least in the short term. However, Trump also believes that the dollar is too strong. How he balances these conflicting views, and whether it involves more aggressive pressure on the Fed to lower interest rates, may trigger currency fluctuations after the debate.

Aroop Chatterjee, strategist at Wells Fargo, pointed out in a report on Tuesday that if Harris is elected, there will be reduced uncertainty in U.S. government decisions in areas ranging from trade and immigration to foreign policy. This could put pressure on the U.S. dollar, which is considered a safe haven. The expiration of the tax cuts introduced during Trump's presidency will also provide the Fed with more room to ease monetary policy, which could weigh on the dollar.

In addition, during the debate, investors can pay attention to the trend of Bitcoin as a clue to determine who has the upper hand in the debate. If Bitcoin rises, it may mean that the audience believes that Trump has performed better because he has openly supported cryptocurrencies. In contrast, Harris has not detailed her policy position on digital assets. Furthermore, under the leadership of the US Securities and Exchange Commission (SEC), the Biden administration has also taken action against the cryptocurrency industry.
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