Analysis
July 31, 2024
Traders and analysts debate how much politics affects markets. Significant changes to the political landscape cause market movements across asset classes, but routine election results or the continuation of the status quo have little to no long-term impact. In the last decade investors have become accustomed to occasional shock results, or election victories by previously fringe candidates or parties. These events have far greater impact, and past presidential elections – notably 2016 and 2020 – have seen a major, positive market reaction. But it’s important to remember that these are still unusual events, and for stock markets at least, the main drivers of performance are not political.
The US presidential election will take place on a Tuesday, and the results should be clear in the early hours of 6 November. That means stock markets will be closed when the all-important exit polls and state-by-state results begin to come in, while the impact on the USD can be seen immediately. That means the nature and timing of any volatility will be different in stock and forex markets, with the potential in stocks for a sudden move at market open.
The long-term impact of election cycles on stock performance is of great interest to equity analysts and portfolio managers, but not the top concern for CFD traders. CFD traders typically day trade or hold positions for short periods, so while the overall risk environment and view of equities is important, it is not the focus of their trading. By contrast, for long-term investors buying cash equities, elections and the policy changes they can produce are crucial.
So far, the campaign has focused on the personalities of the current and prospective candidates and their respective records on the economy, alongside mostly social issues. On the core policies affecting US stock prices – defence spending, trade policy, and regulation – the two parties are quite close, and markets have performed equally well under recent Democratic and Republican administrations. Specific stocks, such as those with major law enforcement contracts like Axon Enterprise , could potentially benefit from Trump’s promised tightening of border security. Changes to laws around healthcare insurance or drug pricing could potentially impact the pharmaceutical and insurance sectors.
Trade policy and the creditworthiness of the US government are the two factors most in play for FX CFD traders during a presidential election. Worries about the economic direction of the US, unsustainable levels of debt, or growing trade imbalances can all harm FX rates. Because forex markets operate 24 hours a day, this is the first place where traders can see the initial reaction to a Trump or Harris win. It may be opportune to look for a surge of volatility around the exit poll, as traders rebalance their portfolios and make sense of the results.
The US dollar’s role as global reserve currency relies on the economic dominance of the United States and market confidence in the monetary policy of the Federal Reserve. Since the Fed is an independent body, it is not directly impacted by a change in president. But Congress and the President do have a role in shaping trade policy, and their respective spending plans may be more or less credible to markets, potentially pushing the dollar up or down accordingly.
The forex market, especially the USD basket index and dollar pairs with other reserve currencies such as EUR/USD and USD/JPY will offer the first opportunity to trade the election. As results come in on the morning of the 6th, markets will experience volatility based on the certainty of the result, how far it corresponds with polling, and other factors including expected policy changes. In the 2020 election, results changed significantly over the course of the night as vote counts and exit polls were updated. That means markets could be in for sustained volatility in the case of a close final run in key states if either candidate wins an emphatic victory. In times of uncertainty and market volatility, traders may want to implement a robust risk management strategy to protect their portfolio.
CFD traders looking to profit from volatility around the US presidential election will be active in forex markets throughout the 5th and 6th November. Stock and stock CFD traders will need to wait for markets to open the following day and will likely experience the market reaction as a sudden surge in either direction as a consensus forms, resulting in either a risk on or risk off environment. Whatever market you trade in, make sure you are aware of polling and results announcement times, as a presidential election is a potential volatility flashpoint.
What time do US election results usually come in?
Exit polls are typically released shortly after polls close on election day, which varies by state but is generally between 7-9pm Eastern Time. Early results start coming in within a few hours, but the full picture may not be clear until late in the night or even the next day, especially in close races. In recent elections, major news networks have often been able to project a winner by late evening or early morning hours. However, the official certification of results can take days or weeks.
How do US elections impact global markets?
US elections have a significant impact on global markets because of America’s outsize economic influence and role as reserve currency. Stock markets often experience volatility in the lead-up to and immediately following an election, especially if the result is unexpected. The US dollar may strengthen or weaken based on the perceived economic policies of the winning candidate. Certain sectors may be more affected depending on proposed policies. However, long-term market trends are generally influenced more by economic fundamentals than by who occupies the White House.
What were the market reactions to recent US elections?
The 2016 and 2020 elections were both bullish for stock markets. In 2016, the unexpected victory of Donald Trump initially caused a brief, sharp drop in futures markets, but this quickly reversed, leading to a prolonged rally in stocks and the US dollar and general risk on environment. The 2020 election saw markets rise as the results became clear, continuing with a strong rally into 2021. It’s important to note that market reactions can be unpredictable and influenced by many factors beyond just the election result.