This week, stock investors are becoming increasingly nervous as the odds in the betting market significantly tilt towards the Republican Party's comprehensive victory in the USA general election on November 5, approaching 50%.

According to market participants, the so-called "red wave" sweeping the White House and Congress may allow the Republican Party to quickly push through its policy agenda. On Wednesday, when Polymarket predicted the odds of this scenario reaching 49%, US government bonds were sold for the third consecutive day, and the Dow Jones Industrial Average (DJIA) saw its largest single-day decline since September 6.

Since Monday, the possibility of a comprehensive Republican victory has significantly increased, almost doubling. During the period from Monday to Wednesday, the Dow and the S&P 500 index (SPX) dropped by 760.96 points and 67.25 points respectively, marking the largest three-day decline in about seven weeks. On Wednesday, the yields on 2-year, 10-year, and 30-year government bonds closed at their highest levels in two to three months. The 10-year breakeven inflation rate (reflecting long-term average inflation expectations) remained at 2.3%, rising from its low of 2.02% in September.

Brian Mulberry, portfolio manager for clients at Chicago-based Zacks Investment Management, said that investors this week are more concerned about the "possibility of one party controlling all three branches of the government and the potential for any regulatory or tax changes to be quickly implemented," rather than the possibility of Trump returning to the White House.

"Typically, when the government is divided or there is time to adjust to policy changes, the market tends to be more stable," Mulberry said over the phone. "But when one party is in power, policy objectives are easier to achieve." Referring to the high probability of a Republican victory next month, he said: "Certainly, the stock market is indeed somewhat prematurely treating it as a certainty."

On Thursday, the Dow fell for the fourth consecutive day, closing down by about 140 points, while the S&P 500 index rose by 0.2%. Trump led Harris by a slight margin in the latest national poll by The Wall Street Journal. The former president led by 2 percentage points with 47% to 45%, a gap within the margin of error that could put any candidate in the lead. According to Polymarket, Trump is also leading Harris in the betting market, with a trader placing a large bet on Trump winning.

Market participants have been closely watching the possible policies of Trump and Harris, which may exacerbate the $1.83 trillion national debt deficit, leading to sustained higher US interest rates and even the possibility of reigniting inflation. However, Trump's comments about imposing tariffs on imported goods have attracted the most attention.

Jay Sommariva, ​​director of asset management at Fort Pitt Capital Group in Murberri and Pittsburgh, believes that Trump's trade remarks may just be "talk", and the market may have overestimated the actual impact of Trump's victory on the economy.

Murberri stated: "Considering the policies of the Trump administration from 2017 to 2021 and the current Biden administration, I do not think there will be significant differences in the spending of the two candidates." He added: "Some of the current situations are ultimately just talk, and when it comes to what the government really needs to implement, the changes are not significant."

Stephen Innes, managing partner of SPI Asset Management Company in Bangkok, stated that traders have started hedging against more inflationary policies (such as higher tariffs, looser fiscal policies, and stricter immigration controls). But Sommariva of Fort Pitt has a different view.

The company led by Sommariva manages assets of nearly $6 billion, and he links the recent market volatility to the risk of the election results not being immediately disclosed. He said in a Thursday call: "Specific industries may perform better under specific party rule, so many traders may stay on the sidelines or take profits until the final results are clear."