Donald is taking a risk, but he has no choice

SP500

Key zone: 6,700 - 6,800

Buy: 6,800 (on strong positive fundamentals); target 6,950-7,100; StopLoss 6,740

Sell: 6,680(on a pullback after retesting 6,750); target 6,550-6,500; StopLoss 6,740

High oil prices are becoming a serious political problem for the Trump administration on the eve of the U.S. midterm elections. If the military conflict with Iran drags on for several more months, the Republican Party risks facing significant electoral losses.

According to the prediction market Polymarket, the probability of Trump’s impeachment is already estimated at 71%. The chances of Democrats gaining a majority in the Senate have reached 47%, while the probability of the House of Representatives coming under Democratic control, according to the same prediction market, has risen to a record 85%.

Public opinion polls show a rather skeptical attitude among American society toward the military operation.

• about 53% of citizens oppose continuing military actions against Iran;
• only around 40% support the administration’s actions;
• about 60% of respondents believe the conflict could make the United States less safe.

At the same time, public support is extremely polarized.

• about 85% of Republican supporters back the military operation;
• roughly 90% of Democratic Party supporters oppose it.

Support for the president largely rests on the mobilization of the Republican electorate and rhetoric related to the threat of the Iranian nuclear program.

Most independent voters, on the contrary, tend to favor ending the military actions. It is precisely this part of the electorate that traditionally plays a key role in midterm elections.

The main political threat to the Trump administration is connected with the economic consequences of the conflict. While oil prices rose above $100 per barrel, gasoline prices in the United States climbed to $3.54 per gallon — almost 60 cents higher.

For American voters, fuel prices remain one of the most sensitive indicators of the economic situation.

If gasoline prices exceed $4 per gallon during the summer, it will practically guarantee electoral losses for the party of the sitting president.

The Trump administration has found itself in the classic political trap of a war before elections. Historically, the president’s party almost always loses seats in midterm elections, and a military conflict combined with rising energy prices only strengthens this effect.

There are two basic scenarios for the development of events.

• The first scenario предполагает a rapid military victory, consolidation of society around a “national idea,” a rise in the president’s approval ratings, and the preservation of control over Congress.
• The second scenario assumes a prolonged conflict that keeps oil prices high, increases inflationary pressure on the economy, reduces support among independent voters, and leads to the loss of control over Congress.

Historical experience shows that the second scenario occurs significantly more often.

The problem is that Tehran is showing no willingness to capitulate. This means the conflict could last for at least several months.

Investors are already taking the high level of uncertainty into account and are not rushing to actively increase positions. Futures on U.S. stock indices remain in a sideways range after the recent correction.

Out of the 11 sector indices of the S&P 500, nine ended the previous trading session in decline. Energy companies experienced the greatest pressure amid speculative volatility in oil prices.

Stock indices periodically attempt to rise on expectations of a quick end to the conflict in the Middle East. However, the probability of a diplomatic settlement remains extremely low.

At the same time, macroeconomic risks are also increasing. Before the conflict began, the probability of a recession in the United States on the Polymarket platform was estimated at about 20%, whereas now this indicator has already reached 30%.

Prediction markets often begin to capture such changes earlier than traditional sociological polls and political analysts. If this trend continues, the midterm elections to Congress may turn not so much into a referendum on Trump’s presidency as into a vote about the price of gasoline.

So we act wisely and avoid unnecessary risks.

Profits to y’all!