Investors are ramping up their bets on the U.S. presidential election.
Financial advisers caution against making any major investment decisions related to an election—and history shows that the market consequences of a certain candidate’s or party’s victory are unpredictable.
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“When Trump was elected, expectations were that technology would underperform and financials and energy would outperform,” said Nancy Tengler, chief executive of Laffer Tengler Investments. “The exact opposite was true.”
That isn’t stopping investors from trying to get an edge. Here are some of the ways they are trying to profit from—or hedge against—the outcome.
Prediction markets
Betting markets that let people wager on election outcomes aren’t new. A recent court ruling legalized them in the U.S.
Prediction markets such as Kalshi and Interactive Brokers’ ForecastEx let investors purchase contracts that pay out about $1 if a chosen candidate wins, or nothing if the bet is wrong. Contract prices fluctuate based on demand and the perceived odds of a candidate’s winning.
Some prediction markets have shifted sharply in favor of former President Donald Trump since the beginning of October, when they showed the presidential race was nearly deadlocked. On Polymarket, a platform that isn’t open to Americans, a contract that pays out if Trump wins cost around 60 cents on Friday, compared with 40 cents for Vice President Kamala Harris.
In theory, betting markets offer a real-time look at election-outcome expectations, with real money on the line. But a recent flurry of wagers among four big accounts on Polymarket are raising questions about who is behind them.
The latest polls show the two candidates are nearly deadlocked in the key swing states that will decide the election.
Shares of Trump Media & Technology Group, the Trump-backed parent company of Truth Social, have been a volatile playground for traders who are trying to predict the outcome of the race.
Often referred to by the ticker DJT, the company’s nearly $6 billion market value belies its fundamentals, which include less than $2 million in reported revenue in the most recent quarter.
DJT has achieved meme-stock status, attracting day traders, and its performance has often been tied to Trump’s perceived election chances.
The shares have doubled since mid-September, moving up in line with Trump’s odds on betting-market sites. Trading volume has soared.
The concurrent moves have prompted some traders to speculate that big-money investors have made large wagers on Trump in betting markets in an attempt to push up the shares of DJT or other stocks tied to Trump’s prospects, such as Coinbase Global.
Shares of the cryptocurrency exchange have jumped around 25% in October. Trump emerged as an unlikely ally of the crypto industry in recent months. He pledged to create a strategic bitcoin reserve to hold the nation’s supply and to fire Gary Gensler, the chair of the Securities and Exchange Commission, who is leading a fight to police the sector. Bitcoin has advanced around 5% over the same period.
Hedging for volatility
Some investors are looking for ways to damp the volatility associated with elections, or find trades that look set to win regardless of the outcome.
UBS has recommended several short-term trades for its wealth-management clients who want to play the election.
Within the stock market, the financial and utilities sectors both look poised to perform well under either administration, said Kurt Reiman, head of fixed income for the chief investment office at UBS Global Wealth Management.
“Utilities are the classic defensive position with a good dividend stream and reasonably reliable performance no matter the economic environment,” Reiman said. “It’s also a sector that’s set to benefit from the energy demand related to artificial intelligence.”
Financials look relatively cheap and have recently reported strong earnings under a Democratic administration, Reiman added.
“If a Harris administration represents the status quo, and a Trump administration might actually be deregulatory for banks, we like financials either way,” he said.
A classic hedge for an investor worried about upheaval or volatility in the event of a contested election: gold. The precious metal has been on a tear this year, a potential sign that investors are hedging their exposure to traditional financial assets.
Currencies
Wall Street appears to be bracing for the possibility that Trump’s proposed tariffs could disrupt global trade.
Hedge funds have increased bearish bets against the Chinese yuan and Mexican peso in recent weeks, according to Commodity Futures Trading Commission data, in a bet that a Trump presidency could dent demand for the currencies of the biggest U.S. trade partners.
Implied volatility for both currencies against the dollar—a measure of how much options traders expect them to move in the future—has soared over the past two weeks, along with Trump’s election odds in betting markets.
“The possibility of higher important tariffs looms large,” analysts at Lazard Asset Management wrote in a recent report. “We see the potential for not only direct effects on individual emerging market countries but also ripple effects on global trade.”
—This article might be updated in the future with new data.
Write to Jack Pitcher at jack.pitcher@wsj.com
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