Scott Bessent, a billionaire investor, expects the stock market to continue to rally whenever former President Donald Trump leads Democrat President Joe Biden in general election polling. If Trump beats Biden in November, Bessent expects a huge and long-sustained boom in the market.
In an 18-page memo to investors sent on Wednesday, Bessent and his management team at Key Square Capital Management LLC—a top investment firm—laid out what he calls an ongoing “Trump rally” in the markets as investors expect Trump to topple Biden in November of this year.
“We believe that equity markets are in the midst of a ‘Trump Rally’ that will last as long as he remains ahead of Biden in the polls,” the memo, obtained by Breitbart News and first revealed by Bloomberg, reads:
The Key Square view also posits that both political and market analysts are incorrect in their assessment of a Trump second term. It is likely that he would seek rejuvenation/redemption rather than revenge if elected this November. A second term would be expected to embrace Calvin Coolidge-style Roaring Twenties policies over a Herbert Hoover outcome.
Read the memo here:
Key Square January 2024 Letter by Breitbart News on Scribd
Trump himself has talked about this exact phenomenon in recent months. In fact, in an interview with Breitbart News at Mar-a-Lago in late December, Trump predicted a depression like the Great Depression in 1929 if Biden wins in November–but also said that the polls showing him leading Biden are causing the stock market to boom as investors are hopeful he will come back to the White House to undo Biden’s damage and clean up Biden’s mess.
“I think if I don’t win, we’re going to have a depression like 1929,” Trump told Breitbart News then. “I think the reason the stock market is up is because if you look at the polls, people say I’m going to win. Biden is getting lucky in that regard. I had a phenomenal stock market. Everything was good about our economy. We had no inflation.”
Bessent is a very well-known investor on Wall Street, and was previously the chief investor of Soros Fund Management—leftist billionaire George Soros’s investment firm. Bessent and Soros had a bad breakup years ago because Bessent is not a leftist like Soros and is clearly as evidenced by this memo much more in line with Trump.
The memo continues on its second page, noting that data shows whenever Trump is leading Biden, the markets perform much more strongly.
“Former President Donald Trump is now the odds-on-favorite to become the Republican presidential nominee in the next 3-8 weeks,” Bessent’s memo reads:
We strongly believe that a significant impetus for the recent rally in equity markets is the commanding lead that he holds over President Biden in early polling on both a national basis and in the key battleground states. Liquid asset markets are priced on future probabilities–earning projections, interest rate curves, commodity forward prices to name a few–and, in our opinion, markets are now anchoring on the potential market friendly policies of a Trump victory on November 5, 2024.
The memo then explains three factors as to why the market is responding so strongly to a possible Trump return to the White House. First off, it says, Trump’s return would lead to “an extended, market friendly economic, tax and regulatory environment.”
Second, and perhaps most interestingly, the threat of Trump defeating Biden seems to have scared Biden’s administration away from more radical policies as of late.
“Second is the response from policymakers in response to Trump’s lead,” the memo reads:
Our belief is that for the time being a positive self-reinforcing cycle has been created. As Trump’s lead persists, the Biden administration, led by Treasury Secretary Janet Yellen, would be expected to continue to follow, and perhaps accelerate policies, to keep the economy buoyant, provide ample liquidity, contain interest rates and avoid any more blowups like Silicon Valley Bank. All are extremely equity market positive. The chart below shows that even while the Federal Reserve has been raising rates and shrinking the balance sheet via quantitative tightening, bank reserves as seen in the chart below, turned up in early 2023.
Thirdly, the memo explains that it is the belief of Bessent and the others in management at Key Square that Trump’s return to the White House would represent a lot of the policies seen in 2017 and 2018—his two first years in office—rather than the disruption seen later in his administration as he fended off two impeachments, the coronavirus pandemic, and the aftermath of the controversial 2020 election.
“Third and finally, we have a highly differentiated view of what a second Trump term would look like,” the memo reads. “It is our belief that the prognosticators are wide of the mark in how another administration would run. Our analysis leads us to believe that it would look much more like the period 2017-18 in the first Trump presidency than the more tumultuous 2019-20 period – more Calvin Coolidge than Herbert Hoover.”
The memo’s next page lays out the scenario of a Trump return to the White House, looking back on the effects of his 2016 victory—calling Trump “Mr. Market’s Friend at 1600”:
The night of Trump’s first victory on November 8, 2016 and into the early morning hours of November 9, US equities crashed, trading limit down with futures locking at the circuit breaker levels. The initial shock of Hillary Clinton’s loss–most political analysts were predicting a +95 percent chance of her winning–sent shock waves through capital markets. That Secretary Clinton refused to appear and to concede the night of the election also raised the specter of a heavily contested recount similar to Bush-Gore in 2000.
As market participants rushed to examine Trump’s stimulative economic policies and Clinton made a belated concession speech on November 9, equities staged a strong rebound that continued for weeks. The upward bias in US stocks continued until the third quarter of 2018.
Today, the market is focused on whether the Trump tax cuts, due to expire in 2025, will be extended or made permanent. The Biden White House economic team has already thrown cold water on a renewal of most Trump-era tax cuts and called for higher taxes on corporates and upper income Americans. Again, market participants initially tend to extrapolate past events, and in our opinion, this simplified view of a Trump victory is the focus of investors at the moment.”
Next the memo lays out that during the rest of this year the investors expect Biden to try to play it cool with regard to effects on the economy because he is desperate to get reelected. But assuming Trump pulls it off—and many economic leaders worldwide are warning that a second Trump term might see harsh economic policies as radical leftists laughably and falsely argue he is acting like an “authoritarian”—Bessent and his team expect an environment of economic boom in America, a new golden age.
“Our base case is that a re-elected Donald Trump will want to create an economic lollapalooza and engineer what he will likely call ‘the greatest four years in American history,’” the memo reads. “Economist Ed Yardeni believes that post-Covid America has the potential to have a boom similar to the ‘Roaring Twenties’ of a century ago. We believe that a returning President Trump would like this to be his legacy.”
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