Experts explain why Trump verdict could kickstart market volatility around the 2024 election

Former President Donald Trump’s historic guilty verdict on falsifying documents could lead to increased market volatility, experts warn.

But that’s not necessarily bad news for investors.

Ed Yardeni of Yardeni Research told me on Yahoo Finance’s ‘Catalysts’ that it’s an opportunity for investors to buy.

“Any sell off in the market related to a geopolitical crisis or a domestic political crisis may actually turn out to be a buying opportunity,” Yardeni said. “The market will continue to focus on what is most important, and that’s the economy, and if politics affect that, then that will obviously have an impact on the stock market.”

Investors may be looking at Friday’s soft market reaction and think the Trump verdict doesn’t matter. But the calm may be short-lived.

22V Research senior managing director Kim Wallace told me that as the election begins to fully come into focus, the VIX — known as the fear gauge index — will “likely get a strong bid” by mid-summer, as the market begins to give clues on how it will react to various election outcomes.

For some perspective, Goldman Sachs strategists Dominic Wilson and Vickie Chang wrote in a recent note that during the prior two elections, the summer convention season “provided one of the first broad market-moving events of the election cycle.”

The Republican National Convention is set to get underway July 15 in Milwaukee, followed by the Democratic National Convention in Chicago August 19.

So far this year, the VIX has been muted. The CBOE Volatility Index closed below 12 for the first time since 2019 last month, and remains well below its historical average of 19.9.

With about five months until election day, investors are beginning to assess which candidate is better for stocks.

The market seems to be cheering on the probability of a Trump victory this fall, according to analysis from LPL Financial’s chief technical strategist Adam Turnquist. The correlation between the S&P 500 and Trump’s chances of winning the election has notably increased over the last few months.

Conversely, President Biden’s election odds have remained negatively correlated to the market since February.

Comparing investor sentiment to past performance, the market has historically done better with a Democratic president. Carson Group chief market strategist Ryan Detrick told me earlier this year that the S&P 500 gained an average of 11.5% when a Democrat was in the White House, versus 7.1% for a Republican.

According to industry experts, major policy areas with market implications include fiscal policy, tax and regulations, and geopolitics.

If campaign promises are a guide, a win for President Biden in November will likely lead to further investments in clean energy and manufacturing, expanded healthcare coverage, and lower prescription drug costs.

Potential market-moving policy shifts under Trump include an extension of the 2017 tax cuts, promises to “unleash the production of domestic energy resources,” and plans to impose a 10% tariff on most imports and a 60% tariff on Chinese imports — which Wall Street and policy experts tell Yahoo Finance could worry markets and boost inflation.

“Trump is largely seen as the best candidate for the markets because of his deregulation agenda, but there is real fear about what will happen from a trade policy perspective,” BTIG policy research director Isaac Boltansky told me.

Evercore ISI’s Sarah Bianchi, who served as deputy U.S. trade representative under Biden, warns the market has not yet priced in any “Trump 2.0 trade war risk,” but this could change if he continues to lead in the polls.

“We believe Trump 2.0 would mean the return of trade-related market volatility and we would not be surprised to see markets start pricing some of that risk soon,” Bianchi wrote in a note.

Whoever wins the election, Berkshire Hathaway’s billionaire CEO Warren Buffett is still likely to focus on super long-term investing — the same goes for his son. Listen in below to Howard G. Buffett on Yahoo Finance’s ‘Opening Bid‘ podcast discuss his investment philosophy and his legendary father.