Gavekal sees 'a sizable red wave come November’s vote'

Recent political events in the United States, most notably Joe Biden’s surprisingly poor debate performance and the attempted assassination of Donald Trump on Saturday, strongly indicate a robust Republican showing in November’s US elections, according to Gavekal Research.

Sixteen weeks is a long time in politics, and much can change before November. However, the 2018 stabbing of Brazil’s Jair Bolsonaro demonstrated that “assassination attempts swing undecided voters towards the victim in large numbers,” Gavekal noted.

In the US, more than any other democracy, fundraising plays a crucial role. Following Trump’s conviction on May 31 in a New York court, his campaign saw a surge in donations. After the attempted assassination on Saturday, it is expected that contributions to Trump’s campaign will once again flood in, the macro research firm said in the report.

This influx of support is likely to grow, as the assassination attempt has made it more socially acceptable to support Trump. In 2016, many people were hesitant to openly endorse him. This time, high-profile business figures like Elon Musk and Bill Ackman have publicly pledged their support, and the general public is more openly showing their allegiance.

Meanwhile, the Democratic Party is struggling with internal conflicts and concerns about Joe Biden’s ability to handle a rigorous four-month campaign, leading to a decline in donations. With Hollywood stars increasingly withdrawing their support, backing Biden “has clearly lost its cachet,” Gavekal economists said.

"The prevailing mood has changed, and the stage seems set for a sizable red wave come November’s vote,” they added.

On the positive side for risk assets, this suggests more deregulation, a shift away from diversity, equity, and inclusion initiatives, more merit-based hiring, and fewer environmental constraints—all factors favored by equity markets. However, it remains uncertain if this will be sufficient to drive another increase in broad indexes, Gavekal said.