The stock market rallied on Monday after the assassination attempt on former President Donald Trump, as investors priced in greater odds of his victory.
Analysts have taken to calling this the “Trump trade,” a reference to all the asset classes expected to perform better should he take office. Even before Saturday’s assassination attempt, investors expected certain assets like cryptocurrencies, the dollar, and some oil stocks to benefit from a second Trump presidency—and now Wall Street seems to be forecasting with much greater conviction that he will win the election.
But Monday’s rally doesn’t signal markets are in the clear, according to one analyst.
“History teaches instead that lengthy periods of political violence in democratic societies are very bad for markets and risk-taking,” Macquarie Global FX & Rates Strategist Thierry Wizman wrote in a note published Monday morning.
He cited the examples of Italy’s Years of Lead, which lasted from 1968 to the mid-1980s, and the Troubles in Northern Ireland that spanned from the late 1960s to 1998. The Years of Lead in Italy featured prolonged political strife between neofascist and communist terrorist groups that included multiple bombings as well as the kidnapping and assassination of Prime Minister Aldo Moro in 1978. The conflict in Northern Ireland saw Protestants and Catholics embroiled in guerrilla warfare that claimed 3,600 lives over whether to remain part of the United Kingdom.
Ultimately, both of those violent periods were characterized by reduced investment, brain drains as talented individuals left for professional opportunities abroad, and reductions in tourism, according to Wizman.
If political violence continues here, foreign investors would think twice about the U.S. “From the perspective of an outsider, it would simply not be as amenable a place to invest and build businesses in anymore,” he told Fortune in an interview.
And because the U.S. is the world’s largest economy, any problems it faces would have much broader global implications than those of Northern Ireland and Italy. If the U.S. economy took a hit because of ongoing political violence, it would “spill over to the rest of the world,” affecting worldwide trade, the global defense industry, and the protection of international law, according to Wizman.
“We’re the largest developed, democratic country and economy, so there really isn’t any precedent here,” he said.
The U.S. economy is also facing stubborn inflation, which could be exacerbated by political violence, Wizman added.
The market has long expected that a Trump win in the election would be inflationary, fed by another likely round of corporate tax cuts, tariffs on all foreign goods, and deregulation. That’s been reflected in rising Treasury yields everytime Trump appears to get an electoral boost, as he did after Saturday’s assassination attempt. On Monday, 30-year Treasury yields reached the same level as 2-year bonds, with both now hovering around 4.46%, Wizman wrote in his note. Bond yields also went up after the June presidential debate, when President Joe Biden had a historically poor performance, which increased the likelihood of a Trump victory in November.
Wizman does make sure to point out that bond yields rising is a result of Trump’s favorable electoral chances, not due to the possibility of political violence. In fact, bond prices tend to go up—and therefore yields down—during periods of political unrest because investors flock to them as relatively safe assets.
In the aftermath of the assassination attempt, political leaders have stressed national unity. President Biden addressed the nation twice over the weekend, on Saturday a few hours after the attack on Trump, and again on Sunday in an address from the Oval Office. “Here in America, while unity is the most elusive of goals right now, nothing is more important for us now than standing together,” Biden said on Sunday.
Trump struck a unifying tone too. “In this moment, it is more important than ever that we stand United, and show our True Character as Americans, remaining Strong and Determined, and not allowing Evil to Win,” the former president wrote on his Truth Social account in a post in which he also decried his ongoing criminal investigations.
