US Election:
How markets might respond to a Trump or Harris win

Trump vs Harris: US Election 2024

In what is already one of the most dramatic Presidential election campaigns in living memory, on 21st July, President Joe Biden announced his withdrawal from the race. We now know that the 2024 Presidential election will see Vice President Kamala Harris running for election against former President Donald Trump. Markets are often volatile in election years, and we can expect further swings as the November 5th election date draws closer. So far, markets have sounded a cautiously optimistic note, without major volatility shocks despite the remarkable events of the campaign.

Events so far

The 2024 presidential election campaign has not been a quiet one. First, the presidential debate on June 27th saw incumbent President Joe Biden struggling with his responses, provoking severe criticism from Republicans and even allies in his Democratic Party. Just a couple of weeks later, former President Trump was shot in the ear in a botched assassination attempt at a campaign rally in Pennsylvania. Finally, President Joe Biden announced his intention not to stand, instead endorsing Vice President Kamala Harris as the Democratic nominee. Though this still needs to be confirmed by the Democratic National Convention in Chicago this August, further changes seem very unlikely.

Impact on polling

Donald Trump maintained a narrow lead in polls leading up to the June 27th debate, a lead that started to grow afterwards. Biden announced he was dropping out of the race on Sunday 21st July, and early polling indicates Harris can expect roughly the same level of national support as President Biden. The polls are still close, but with months to go before the election, there is plenty of room for moves in either direction. That said, throughout 2024 Trump has enjoyed a small but persistent polling lead over both of his Democrat challengers, leading some analysts to consider him the favourite for the 2024 presidential election.

Market reaction to date

So far, markets have remained steady, despite the political turmoil. The S&P 500 and Dow Jones Industrial Average indices have continued to tick up slowly, leading analysts to speculate traders are more concerned by Federal Reserve rates decisions and company earnings announcements. Although markets respond to news events and politics, the fundamental factors underlying stock prices continue to have a major influence.

“Historical studies of US elections show that stock markets tend to perform better after Republican wins, with Biden’s 2020 victory a notable exception.”

Potential reactions

Markets respond differently to each election. The last two presidential elections both saw significant rallies in US stocks and a strengthening US dollar. The last presidential election to see a risk-off environment in the US markets was Obama 2008. Because countries, technology, and industries change with time, older historical examples are unreliable for predicting the 2024 election market response. With that in mind, historical studies of US elections show that stock markets tend to perform better after Republican wins, with Biden’s 2020 victory a notable exception. Assuming this pattern holds, traders can expect the US dollar and US stocks to outperform if Trump wins, while US Treasuries or non-dollar reserve currencies such as the Euro might perform better if Harris does.

Volatility and opinion polling

When opinion polls, which are never an exact science, get it wrong, markets often see increased volatility. As with the 2024 British general election, when polling clearly signals the result before it happens, there is usually less volatility in the sessions immediately after the election. The 2024 presidential election looks like it may be close, within the margin of error of most pollsters, potentially adding to the volatility as results come in.

One of the most important things for CFD traders to watch in the run-up to the election is how polling changes in individual battleground states. The US presidential system relies on an electoral college, where candidates are assigned votes based on which states they win. That means it is possible to win the presidency without winning the national popular vote. Since most opinion polls track national voting intentions, it is important to look at both state and national polling to get a better idea of the likely outcome.

Conclusion for traders: volatility ahead?

No one can say for sure how markets will react to this election. So far, despite the shocking twists and turns of the campaign, US markets have remained cautiously steady. This may change as the election approaches, and the price movements of different assets will be influenced by specific policy debates. While there is some historical evidence that risk-on assets outperform after Republican wins, the experience of the 2020 election shows the reverse may also be true. Traders active in US markets should look to protect themselves against sharp moves at key points: the next presidential debate on September 10th could be a standout moment. If polls remain close as election day draws near, traders could experience increased volatility in both risk on and risk of assets.

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