The guilty verdict delivered by a New York City jury in the Trump “hush money” case is shocking because of its historic nature and potential long-term consequences for American politics. But it was also widely anticipated, given the location of the trial and the way the trial was managed by Judge Juan Merchan.
The immediate question for investors is how the event impacts the outcome of the election.
We do not expect a major near-term market reaction in either direction, as the election remains difficult to predict. Opinion is divided as to whether the verdict helps or hurts the Trump campaign.
As we write, betting markets, such as PredictIt.org, have shifted marginally in favor of Biden since the news was announced, implying a few percentage points greater likelihood of a Biden victory. With Trump’s lead contracting, those placing wagers on PredictIt.org are at the moment more or less evenly split between Trump and Biden.
Interestingly, the implied probability of a Nikki Haley Republican nomination has also risen a few points. There is apparently a slightly higher perceived probability of this verdict setting in motion a chain of events that prevents Trump from gaining the nomination.
The felony conviction of a Presidential candidate is superficially damaging to public opinion. Those leading the charge against Trump in various courtrooms around the country are quite clearly motivated by this theory.
Will it backfire?
In the immediate aftermath of the verdict, Trump’s campaign donation website reportedly crashed due to overwhelming traffic. A pivotal issue is whether more undecided voters on the margin feel Trump was improperly targeted and interpret the guilty verdict as unfair and even threatening to our political system.
In addition to galvanizing additional financial support for Trump, the verdict could also make Trump more appealing in the eyes of minority voters who are core to the Biden coalition, as they relate to his victimization by the criminal justice system.
Conclusions
Notwithstanding betting market activity, we tend to believe the verdict will ultimately favor Trump’s election prospects by generating support for Trump and potentially eroding support for Biden.
As unsettling as the news may be to some, we do not expect a meaningful market reaction in the short-term and do not recommend taking any action specifically in response to this news.
