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So, How The US Election Can Impact the Markets?
More twists and turns than a very scary rollercoaster, the U.S. elections have had us glued from the start. From the first colourful TV debate to Trump going on to catch COVID-19, which then almost miraculously disappeared several days later, investors have been crouching low to defend themselves against the on-going blows.
Perhaps they are already prepared for the unexpected, and have priced in any outcome into the markets? However, we have been looking at data collected over the last 90 years to determine the patterns seen by the markets pre-and post-election. The findings are quite interesting. But first, let’s understand the three possibilities for how the election can turn out:
- Trump, who is the incumbent president, can be re-elected for a second term, keeping the Republicans in the White House.
- If Biden wins, this sees a change of both leadership and the house political party, to the Democrats.
- Alternatively, a contested vote can take place where the loser can question either the legality or the validity of the outcome.
Here are some insights on how the outcomes can impact the markets:
Before election
- Healthcare stocks– Healthcare stocks tend to show increased volatility prior to an election.
- Energy stocks –Watch the energy sector for enhanced volatility over the regulatory stances of each party on energy production.
- The S&P 500– This index has traded up in the 6-month timeframe before presidential elections, since 1990.
- Trend-following strategies– for 2-3 weeks prior to the election, these strategies may outperform range-bound strategies.
After Election
- Democratic win – New candidates voted in, bring elevated uncertainty, which leads to volatility.
- Republican win – If the incumbent president is elected for a second term this may elevate the stock gains prior to the election (approx 6.5%)
- Contested win –If the election is contested meaning legal action is taken prior to the election and no smooth transition between terms, you can then expect mass volatility.
*Data sourced from: https://www.usbank.com/investing/financial-perspectives/market-news/how-presidential-elections-affect-the-stock-market.html
So, what will be the outcome? No matter how it turns out, you can take advantage of the wild market volatility around the elections by trading them. In the meantime, take advantage of our festive spread reduction today!
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