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Economics

Financial markets are betting on a Trump victory

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THE FINAL election polls have been published, and in-person voting has yet to conclude. It is an anxious period, with little new information to parse about who might emerge victorious as America’s next president. But that is not stopping investors from placing, and adjusting, their bets. From prediction markets to bonds, they have more ways than ever to register their views about the likely outcome of the election. Most of their money is on Donald Trump, though his perceived lead over Kamala Harris has narrowed in the past few days.

The easiest place to get a read on the thinking of punters is in election-betting markets. The three that get the most attention are Polymarket, Kalshi and PredictIt. Polymarket, a cryptocurrency-based platform that bills itself as the world’s biggest prediction market, gives Mr Trump a roughly 60% chance of winning the election, as of Monday afternoon in America. That is down from 67% last week, a shift that came after a few late polls—notably, the surprising Selzer poll in Iowa—were more positive for Ms Harris. But Polymarket has plenty of critics, with some arguing that its pricing is easily manipulated.

By contrast, PredictIt, the oldest of the three online betting markets, founded exactly a decade ago, has Ms Harris ahead by the slimmest of margins. But it is also the most limited of the platforms, by design, with strict caps on the number of bettors and the size of their bets. Kalshi, a regulated exchange, comes just about down the middle. It currently sees a 56% probability of victory for Mr Trump, down from 65% last week. In the immediate aftermath of the Selzer poll, Kalshi in fact briefly showed that Ms Harris was the favourite before shifting back in Mr Trump’s direction.

It may seem easy to dismiss these various platforms as silly betting arenas for punters, dominated by young men who spend many of their waking hours online. It is striking, however, that their pricing has closely mirrored “real money” in more established markets. To get a sense of how equity investors are positioned for the election, analysts at Piper Sandler, an investment bank, created two separate portfolios of stocks whose fortunes may rise or fall depending on the presidential victor. Their Trump portfolio features oil companies and weapons manufacturers, plus shorts on firms such as Apple that would be hurt by a trade war with China. Their Harris portfolio is heavy on producers of renewable energy and electric vehicles, while betting against financial firms and drug makers that may face more rules under Democrats.

The performance of the Piper Sandler portfolios lines up almost perfectly with the Polymarket odds. In October, as the betting markets turned against Ms Harris, the Trump portfolio gained about 3% and the Harris portfolio fell by 7%. But over the past week, that gap has closed. For instance, Geo Group, a prison operator in the Trump portfolio, has come under selling pressure, while First Solar, a solar-panel manufacturer in the Harris portfolio, has climbed higher. Citrini, a research firm, has yielded similar results with its Trump-aligned basket of stocks. It soared in July after Mr Trump survived an assassination attempt at a rally in Pennsylvania, tumbled when Ms Harris entered the race and recovered as she seemed to lose momentum. But on Monday, the first trading day after the Iowa poll, Citrini’s Trump basket was down by about 1.4% by the middle of the day.

Election predictions have also had an impact on much bigger, more diffuse markets. Yields on Treasuries and the dollar’s value have climbed over the past six weeks, in part because investors have been girding themselves for a Trump presidency. Their thinking is that his policies, including heftier federal deficits and higher tariffs, are likely to drive up both growth and inflation. Such a backdrop would, in theory, support the dollar and weigh on bond prices, leading to an upward drift in yields. But Monday brought a partial reversal of these trends, with small declines in both yields and the dollar—reflections of Ms Harris’s improved standing in the polls.

What to make of all this trading? One conclusion is that investors are a highly uncertain bunch. Polls have been neck and neck almost the entire race, even as the pricing of election-related trades has swung up and down.

Cutting through that volatility, a second conclusion is that investors have, fairly consistently, been more confident in Mr Trump’s chances than the polls themselves. The Economist’s model, based on polls and fundamental factors, rates the election as a true toss-up. Financial markets—from small-time punters on betting exchanges to the giant institutions that determine the prices of bonds—are closer to 55% in favour of Mr Trump. That is a coin flip but one clearly weighted against Ms Harris.

Economics

Stagflation fears swirl as Trump tariffs take effect and economy slows

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Traders work on the floor of the New York Stock Exchange (NYSE) in the Financial District in New York City on March 4, 2025. 

Timothy A. Clary | Afp | Getty Images

A growth scare in the economy has accompanied worries over a resurgence in inflation, in turn potentially rekindling an ugly condition that the U.S. has not seen in 50 years.

Fears over “stagflation” have come as President Donald Trump seems determined to slap tariffs on virtually anything that comes into the country at the same time that multiple indicators are pointing to a pullback in activity.

That dual threat of higher prices and slower growth is causing angst among consumers, business leaders and policymakers, not to mention investors who have been dumping stocks and scooping up bonds lately.

“Directionally, it is stagflation,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s higher inflation and weaker economic growth that is the result of policy — tariff policy and immigration policy.”

The phenomenon, not seen since the dark days of hyperinflation and sagging growth in the 1970s and early ’80s, has primarily manifested itself lately in “soft” data such as sentiment surveys and supply manager indexes.

At least among consumers, long-run inflation expectations are at their highest level in almost 30 years while general sentiment is seeing multi-year lows. Consumer spending fell in January by its most in nearly four years, even though income rose sharply, according to a Commerce Department report Friday.

On Monday, the Institute for Supply Manufacturing’s survey of purchase managers showed that factory activity barely expanded in February while new orders fell by the most in nearly five years and prices jumped by the highest monthly margin in more than a year.

Following the ISM report, the Atlanta Federal Reserve’s GDPNow gauge of rolling economic data downgraded its projection for first quarter economic growth to an annualized decrease of 2.8%. If that holds up, it would be the first negative growth number since the first quarter of 2022 and the worst plunge since the Covid shutdown in early 2020.

“Inflation expectations are up. People are nervous and uncertain about growth,” Zandi said. “Directionally, we’re moving toward stagflation, but we’re not going to get anywhere close to the stagflation we had in the ’70s and the ’80s because the Fed won’t allow it.”

Indeed, markets are pricing in a greater chance the Fed will start cutting interest rates in June and could lop three-quarters of a percentage point off its key borrowing rate this year as a way to head off any economic slowdown.

But Zandi thinks the Fed reaction might do just the opposite — raise rates to shut down inflation, in the vein of former Chair Paul Volcker, who aggressively hiked in the early ’80s and dragged the economy into recession. “If it looks like true stagflation with slow growth, they will sacrifice the economy,” he said.

Sell-off in stocks

The converging factors are causing waves on Wall Street, where stocks have been been in sell-off mode this month, erasing the gains that were made after Trump won election in November.

Though the Dow Jones Industrial Average fell again Tuesday and is off about 4.5% through the early days of March, the selling hasn’t felt especially rushed and the CBOE Volatility Index, a gauge of market fear, was only around 23 Tuesday afternoon, not much above its long-term average. Markets were well off their session lows in afternoon trading.

“This certainly isn’t the time to hit the panic button,” said Mark Hackett, chief market strategist at Nationwide. “At this point, I’m still in the camp that this is a healthy resetting of expectations.”

However, it’s not just stocks that are showing signs of fear.

Treasury yields have been tumbling in recent days after surging since September. The benchmark 10-year note yield has fallen to about 4.2%, off about half a percentage point from its January peak and below the 3-month note, a reliable recession indicator going back to World War II called an inverted yield curve. Yields move opposite to price, so falling yields indicate greater investor appetite for fixed income securities.

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10-year Treasury yield in 2025.

Hackett said he fears a “vicious circle” of activity created by the swooning sentiment indicators that could turn into a full-blown crisis. Economists and business executives see the tariffs hitting prices for food, vehicles, electricity and an assortment of other items.

Stagflation “certainly is something to pay attention to now, more than it’s been in a while,” he said. “We have to watch. This is such a collapse in sentiment and such a change in the way people are viewing things and the level of emotion is so elevated right now that it will start impacting behavior.”

White House sees ‘the greatest America’

For their part, White House officials are maintaining that short-term pain will be dwarfed by the long-term benefits tariffs will bring. Trump has touted the duties as way to create a stronger manufacturing base in the U.S., which is primarily a service-based economy.

Commerce Secretary Howard Lutnick acknowledged in a CNBC interview Tuesday that there “may well be short-term price movements. But in the long term, it’s going to be completely different.” Market-based inflation expectations are in line with that sentiment. One metric, which measures the spread between nominal 5-year Treasury yields against inflation, is at its lowest level in nearly two years.

“This is going to be the greatest America. We’ll have a balanced budget. Interest rates will come smashing down, and I mean 100 basis points, 150 basis points lower,” Lutnick added. “This president is going to deliver all of those things and drive manufacturing here.”

Likewise, Treasury Secretary Scott Bessent told Fox News that “there’s going to be a transition period” and said the administration’s focus is on Main Street more than Wall Street.

“Wall Street’s done great. Wall Street can continue to do fine, but we have a focus on small business and the consumer,” he said. ” We are going to rebalance the economy, we are going to bring manufacturing jobs home.”

Important clues on where the economy is headed should come from Friday’s nonfarm payrolls report. If the jobs count is good, it could reinforce the notion that the hard data has remained solid even as sentiment has shifted.

But if the report shows that the labor market is softening while wages are holding higher, that could add to the stagflation chatter.

“We have to be observant. There’s the potential that the stagflation term just by itself, by talking about it, can manifest some of it,” said Hackett, the Nationwide strategist. “I’m not in the we-are-in-a-period-of-stagnation camp, but that is the disaster scenario.”

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Economics

Andrew Cuomo plots a comeback in New York City

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Political disgrace isn’t as constraining as it used to be. Andrew Cuomo, whose public career was thought to be dead just three years ago, is back in the spotlight as a newly declared candidate for mayor of New York City—and he is topping polls. Mr Cuomo resigned as governor of New York state in August 2021 amid multiple sexual-harassment allegations (which he denied). On March 1st he announced his comeback.

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Economics

Trump’s armed forces won’t look like Biden’s

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America is set to spend more—and differently

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