A Stock-market ‘Harris Trade’ is Starting to Take Shape

On Wednesday, market attention was drawn to the unraveling of several trades linked to former President Donald Trump. However, by the close of Wall Street trading, a new dynamic — dubbed the “Harris trade” — had begun to emerge.

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Bitcoin prices dropped, while stocks associated with Donald Trump, like Trump Media & Technology Group Corp. and private-prison operator Geo Group Inc., also fell. This came as investors responded to what they saw as increasing chances of Kamala Harris winning the upcoming presidential election, prompting them to sell off shares that were expected to benefit from a second Trump administration.

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At the same time, shares of solar-energy companies, which had struggled for some time, saw a resurgence. By the end of the trading session, these stocks posted their largest daily gains since May, as reported by Dow Jones Market Data. Market strategists suggested that if Harris, the Democratic nominee, continues to maintain her lead over Republican rival Trump, it could further boost the solar sector.

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Solar-related exchange-traded funds (ETFs) experienced significant upticks as well. Notable gains were seen in the Invesco Solar ETF and the iShares Global Clean Energy ETF, with shares of First Solar Inc. standing out with a more than 15% rise, according to FactSet data.

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“There were clear signs of a Harris trade,” said Jay Hatfield, portfolio manager at Infrastructure Capital Management, during an interview with MarketWatch on Wednesday. He observed that while solar stocks were “ripping,” sectors like financials and energy showed weakness. According to Hatfield, solar stocks appeared to be the “leading bellwether” of this emerging Harris trade. Meanwhile, Ross Mayfield, an investment strategist at Baird, suggested that solar energy was “one of the cleanest ways to evaluate that bet,” referencing the market’s perception of Harris’s influence.

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To put it in perspective, clean-energy stocks haven’t always thrived under Democratic administrations. Despite support from the Biden administration, they have been in a prolonged bear market for much of President Joe Biden’s tenure. Ironically, these stocks outperformed when Donald Trump, a Republican, was in office. However, the rally in solar stocks on Wednesday didn’t come as a surprise. Democrats have consistently backed the expansion of renewable energy sources, including solar. Given that solar companies have yet to establish solid profitability, government support in the form of subsidies remains crucial for their growth, according to Mayfield.

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More broadly, Hatfield noted that the market experienced some initial destabilization at the prospect of a Harris victory. However, investors soon moved past the political speculation and found another reason to sell stocks when the August consumer-price index (CPI) report was released. The report indicated that prices for core goods and services, particularly shelter, rose faster than expected, which caught economists off guard.

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Despite these inflationary pressures, comments from Nvidia Corp.’s CEO, Jensen Huang, helped lift market sentiment. Moreover, investors began to recognize that the market’s initial reaction to the CPI data was an overreaction, which led to a recovery later in the day. “It was an initial overreaction,” said Mayfield, adding that the inflation numbers were not likely to alter the Federal Reserve’s strategy significantly.

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One possible reason behind the market rebound was a growing realization among investors that betting markets still pointed to a favorable outcome for markets: a divided U.S. government. Historically, stock market performance has improved when political control in Washington is split between the two parties. Sam Stovall, chief investment strategist at CFRA, provided data that highlighted this trend, although he cautioned that the sample size was too small to draw definitive conclusions.

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Wednesday’s trading session saw U.S. stocks stage their largest intraday comeback in over a year. The Nasdaq Composite posted its biggest turnaround since March 2023, while the S&P 500 and the Dow Jones Industrial Average experienced their largest reversals since October 2022, according to Dow Jones Market Data.

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In conclusion, the market narrative on Wednesday shifted from a focus on “Trump trades” to the emergence of a “Harris trade.” As the political landscape continues to evolve, investors are adjusting their strategies in response to perceived shifts in electoral prospects. The rise in solar stocks and the overall market rebound underscore the dynamic nature of investor sentiment, particularly as key political and economic developments unfold. While clean energy stocks remain sensitive to political outcomes, market participants are also keeping a close eye on broader economic indicators like inflation and the Federal Reserve’s policy direction, all of which continue to shape the trading landscape.

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