Analysis
July 27, 2024
On 5 November, the US will go to the polls to elect their next president. Traders worldwide will be watching closely, as markets price in expected policy changes and economic disruption from the potential result.
Certain key dates throughout the election campaigns will give clues as to who the candidates are, and who might win. Forex, stock and bond markets respond to speculation about the election, especially on important dates like party primaries or public debates.
As the date of the election approaches, results will gradually become clearer based on opinion polling. In the days immediately before the election many traders will look to hedge or close positions, in case of volatility.
Remember that although presidential elections are significant market events, their effect on financial markets is temporary, and are more important to short-term CFD traders than long-term equity investors.
Delegates are assigned in primaries that continue until June of an election year, with whichever candidate first reaches the threshold number of delegates winning the nomination of their party. Following Joe Biden’s decision not to stand for re-election, the candidates for this year will be Donald Trump and Kamala Harris.
The process of assigning delegates is complete for the Republican Party, with the Democratic Convention due to take place in August. However, this is just a formality for Kamala Harris, who has already been endorsed as the Democratic candidate. The only candidate question that may still impact markets is the existence of a viable third-party candidate, which would add volatility across markets, but which does not seem to have materialised in 2024.
Presidential results in the 1992, 1996 and above all the 2000 elections were made less predictable by strong third-party showings, and markets will respond to this uncertainty with increased volatility, especially in FX pairs of the USD and its main trading partners, alongside US stocks.
Once the candidates are confirmed – which, apart from for any potential third-party candidate, they already are for 2024 – the next thing traders follow closely is polling. Various polling providers and major news organisations often produce sampled polling, state by state and nationally, to provide an estimate of the result before it happens. The eventual result is usually within the margin of error of this polling.
The biggest single event to impact polling numbers is traditionally the presidential debates, which are televised events where two candidates contest each other’s record and debate policy. These debates are major national media events and can impact polling significantly, potentially causing market disruption.
Publicised debates for the next US presidential election are likely flash points for market volatility. With another presidential debate scheduled, and a vice-presidential debate planned, but not confirmed, look for market disruption in stocks if a clear winner emerges in any debate. The scheduled dates are as follows:
Depending on their views on the candidates, CFD traders may trim or close positions around these dates, or open corresponding positions during or just before the debates begin. It is essential to remember these debates will take place when US stock markets are closed, so traders looking to participate in market moves in real-time may use FX CFDs.
Barring major unexpected events, polling after the final debate and in the weeks running up to the election itself will be quite close to the eventual result. At this stage of the election cycle, markets begin to price in the expected result, which will likely follow the pattern seen in previous election cycles. In the long term, elections have little impact on the stock market, but short-term volatility events may follow the pattern seen in previous elections .
The 2024 US presidential election will take place on Tuesday, 5 November, and poll opening and closing times will vary by state. The NYSE and NASDAQ will be open on the day of the election. However, given results will not become clear until long after market closure, election day will probably be a subdued trading session in the US stock market.
After the results come in overnight, the start of the trading session on 6 November will be volatile, with sudden swings in stocks expected to perform well or poorly under the incoming administration.
The FX market operates 24 hours a day, and so will give a first indication of market reaction to the presidential election result. Dollar strength is mostly independent of the policies of the Republican or Democratic parties, instead relying on multi-decade trends in global trade and FX reserves.
A shock result – one that does not correspond to polling before the election – may still cause FX volatility, and some currencies such as the Mexican Peso may weaken in the event of a Republican win, an effect seen in 2016.
Finally, it is worth bearing in mind any market impact of either a Democratic or Republic win is likely temporary. Compared to interest rate decisions, the market impacts of election results are short-term and limited to specific sectors. That may be suitable for CFD traders, since they are interested in short-term volatility rather than the longer-term trends sought out by investors.
You can form a judgement for the likely market reaction of the next US presidential election by studying the impacts of previous elections on different markets and using them to predict which stocks and currencies are most likely to be impacted in 2024. Whatever your strategy for trading the election, traders need to be aware that both televised debates and the days immediately before the election can experience heightened volatility, and place your positions, and risk management strategies, accordingly.
How can CFD traders respond to election volatility?
ADSS CFD traders are well-positioned to trade on periods of enhanced volatility before and during the election. At key dates in the run up to the 2024 US presidential election vote, volatility will spike as opinion polls indicate the likely winner. By observing past market reactions to US reactions, traders can try to predict the potential 2024 market response.
Which markets will profit in the event of a Republican or Democrat victory?
It’s not possible to say for sure how the market will react to any single election result. What we can say is that in past elections the US stock market has responded positively to both Democratic and Republican victories, but the closeness of the result and specific policies of each candidate will influence how individual stocks perform. A narrow victory for either side would likely result in increased volatility for the US dollar and domestic stocks.
What happens to the stock market in an election year?
In past election years the US stock market has outperformed considerably. The long-term growth potential of stocks is not really impacted by changes in president, but in terms of short-term market volatility elections are major events, with the run-up and immediate aftermath of the elections seeing major volatility spikes.