ETF Strategies to Consider as Trump Nears Victory

Republican candidate Donald Trump claimed victory in the 2024 U.S. presidential election after Fox News projected that he had defeated his Democratic rival Kamala Harris. Control of the U.S. Senate shifted to Republicans, Fox News projected.

The Associated Press called that the former president secured North Carolina, Georgia, and Pennsylvania — three critical swing states. Dow, S&P, Nasdaq futures jumped on the expected Trump victory. All states have now closed their respective polling stations. So far, the AP assesses that Trump has secured 267 electoral college votes, while Harris has claimed 224.

Against this backdrop, below we highlight a few winning ETF strategies that could be gainful ahead.

Dollar Hits One-Year High: How to Play It?

The dollar touched its highest level in a year as Donald Trump took the lead in the U.S. presidential race. This led to a significant increase in Treasury yields due to speculation that his policies would maintain elevated U.S. interest rates. Futures tied to the 10-year Treasury note rose over 12 basis points to trade around 4.4%.

Although Trump has advocated for a weaker dollar, investors believe his policies will increase inflation and slow the pace of the Federal Reserve’s interest-rate cuts, eventually boosting the greenback. Trump promised to cut taxes and impose hefty tariffs on imports. This will hurt the currencies of some of America’s biggest trading partners.

In this scenario, investors should play the pureplay U.S. dollar ETFs like Invesco DB US Dollar Index Bullish Fund UUP. Meanwhile, the gold ETF SPDR Gold Shares GLD may fall as the metal is priced in the greenback.

On the other hand, the dollar’s strength weakened the yen. The Japanese yen (JPY=X) sank to its lowest since July. This has boosted the export-centric Japanese equity gauges. Japan's tech-heavy Nikkei 225 climbed 2.6%, while the broader Topix stock index gained 1.9%. WisdomTree Japan Hedged Equity ETF DXJ should be in a sweet spot.

China Investing Under Pressure?

During his previous term, Trump became known for imposing tariffs on Chinese imports. China also responded with tit-for-tat tariffs. We may see another round of trade war with China now. In China, Shanghai's blue-chip CSI 300 closed 0.5% lower, and Hong Kong's benchmark Hang Seng was down 2.3%.

The Hang Seng China Enterprises Index fell 2.6%. iShares MSCI China ETF MCHI lost 2.4% in premarket on Nov. 6, 2024. Investors may play inverse China ETF ProShares UltraShort FTSE China 50 FXP for some quick gains. The ETF added 4.6% in the premarket on Nov. 6.

iShares MSCI Emerging Markets ETF EEM will also be under pressure due to rising U.S. treasury yield and a higher greenback.

Bitcoin Rally Resumes

Bitcoin has hit an all-time high of $75,000, surpassing its previous record of $73,770. Donald Trump is widely seen as a pro-crypto presidential candidate. Reduced regulatory hurdles could encourage even greater institutional participation. Plus, since its inception in 2009, Bitcoin has circumnavigated three election cycles, each followed by a rally to new heights, with prices never returning to pre-election levels. iShares Bitcoin Trust IBIT added 2.9% in the pre-market session on Nov. 6 (read: 5 Factors to Bet on Bitcoin ETFs).

Small-Caps to Hit Highs?

The small-cap segment should outperform ahead given the strength in the U.S. dollar, strong earnings, likely international trade tensions, and geopolitical worries. Plus, economic well-being at the domestic land is seen as beneficial for small-cap stocks. Since the U.S. economy has been performing better than several other developed economies, iShares Russell 2000 ETF IWM in the Trump presidency. The ETF IWM added 6.4% in the premarket on Nov. 6, 2024.

Banking Sector in Sweet Spot

Trump is known for deregulation in the banking sector. In Trump’s previous term, Congress approved a plan in May 2018 to scale down stringent banking regulations, the Dodd-Franck Act, undertaken at the height of the 2008 financial crisis. Regional banking ETFs benefited from this move. In any case, banking ETFs have been in great shape this year. A Trump victory will likely add to the joy. SPDR S&P Bank ETF KBE jumped 7.9% in premarket on Nov. 6.

Tesla Stock Surges

Tesla TSLA shares surged more than 15% in premarket trading as Donald Trump looks to be on the verge of winning the presidency again. Tesla chief Elon Musk is a staunch supporter of Trump. Per Wedbush analyst and Tesla bull Dan Ives, although a Trump presidency would be an overall negative for the EV industry due to a non-EV subsidy environment, Tesla may benefit.

Tesla's unrivaled scale and scope in the EV industry could provide Musk and the company with a significant competitive advantage, especially in an environment without EV subsidies. This, combined with the potential for higher tariffs on Chinese imports, would likely keep cheaper Chinese EV manufacturers like BYD and Nio from flooding the U.S. market in the coming years. T-REX 2X Long Tesla Daily Target ETF TSLT has added 5.5% in premarket.

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