The US presidential election is next week, on November 5. This event traditionally has a significant impact on the global financial markets. A lot can change dramatically with a new president-elect — from taxation to foreign policy.
We have prepared a detailed analysis of what you can expect from the upcoming election. Overall, dramatic changes always mean volatility. To prepare to trade on volatility, ensure you have funded your account so you can promptly open your positions when the time is right.
Historic examples
To better understand the possible impact, let’s consider examples from the recent decades of the United States’ history.
2000: Bush vs. Gore
The election ended with a disputed vote count in Florida, which caused significant volatility in the markets. The S&P 500 index, which was at about 1,400 points in early November 2000, fluctuated over the next few months. During the first month, the index fell by 6.47%, partly because of concerns over the uncertainty of the new administration and its economic policies.
2008: Obama vs. McCain
The election occurred during the global financial crisis and led to significant market changes after Barack Obama’s victory. After the election, the S&P 500 index fell by 10.75% but fully recovered by the end of the year and continued to rise, driven by investor optimism over plans to reform health care and financial regulations.
Obama promised measures to save the economy, which boosted stocks in health care and infrastructure-related sectors. However, volatility persisted, and 2008 was a challenging year for stock markets overall.
2016: Trump vs. Clinton
The election was a sensation when Donald Trump defeated Hillary Clinton, which surprised many analysts and investors. After the results were announced, the S&P 500 index rose 5.77% in the first month. Investors anticipated tax cuts and less regulation, which boosted stocks in energy and finance.
Financial stocks, such as banks, particularly benefited from Trump’s victory as his administration proposed to ease the regulations imposed after the 2008 financial crisis.
S&P 500 in the first post-election month of 2016
2020: Biden vs. Trump
The 2020 election took place amid the COVID-19 pandemic. Initially, Biden’s victory caused short-term volatility, but the S&P 500 index quickly recovered and continued to grow. The main growth drivers were expectations of a massive economic stimulus and vaccination program.
S&P 500 in the first post-election month of 2020
Markets affected by the election results
Stock market
The equity market is one of the most sensitive to election results. Investors evaluate how the new president’s politics may affect corporate earnings. The reaction depends on the sector: an election could lead to stock gains in energy and finance if the president-elect supports traditional businesses or to growth in technology and renewable energy because of his focus on social and environmental programs.
Bond market
Expectations about changes in government policy can cause interest rates to fluctuate. For example, if a new president promises significant fiscal spending, inflation expectations can grow, leading to higher interest rates and falling bond prices.
Commodities
• Energy policies can significantly affect oil and gas prices. If the president-elect supports increased production, this could push prices down. However, a focus on sustainability could stimulate demand for alternative energy sources.
• Gold is considered a safe-haven asset in any situation of uncertainty. Investors may increase their investments in gold, pushing the price of gold-based instruments higher.
Currency market
• Expectations of changes in economic policy can affect the US dollar. For example, if the president-elect proposes programs to deepen the budget deficit, it could weaken the USD. Vice versa, positive economic expectations could strengthen it.
• Investors may also reconsider their positions in other currencies depending on political risks and expected changes in economic policy.
XAUUSD in the first post-election month
What if Kamala Harris wins
• Harris proposes to increase taxes on high-income earners and large corporations.
This could damage corporate profitability and cause anxiety in the stock market.
• A focus on clean technology and sustainability could lead to increased investment in renewable energy.
Equities are expected to rise in sustainability and healthcare, but traditional sectors may face risks.
• Expanding social programs in healthcare and education could increase government spending and debt.
The dollar may weaken, causing investors to worry about the country’s future financial health.
What if Donald Trump wins
• Trump proposes reducing corporate tax from 21% to 15% for local manufacturers. This could stimulate economic growth, increase investment, and create jobs, but it could also increase the budget deficit.
Stocks in energy, construction, and manufacturing sectors are expected to rise. The US dollar could strengthen if investors see the United States as a more attractive place to invest due to tax cuts.
• Trump will continue his trade war with China, which could damage global supply chains and lead to market volatility.
However, trade war politics may cause volatility and risks for international companies.
How should you trade?
The election between Donald Trump and Kamala Harris is a critical event that could dramatically impact financial markets next week and for months. Traders and investors must carefully analyze the candidates’ agendas and long-term economic implications to make informed decisions in uncertain conditions.
Next week and a few months after the election will be crucial, and we can expect intense volatility. Make sure you understand these factors to develop an effective risk management strategy and optimize your portfolio depending on the election outcome.
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