The Main Trading Scenarios For The US Election Ahead | Key Market Trends To Know About
Ok, hold on a second.
The election is still months away, isn’t it?
Yes!
But the second (presidential) debate is set to take place on September 10.
And you know…
Markets don’t move just on Election Day.
They move on expectations!
And so…
If you are an investor, trader, or analyst, this election is about to make markets a lot more volatile.
And so you need to be fully aware of it.
Why you should care about the US election already:
With the upcoming debate (September 10) the market will be able to start painting a clearer picture of the upcoming political landscape.
In 2016 the polls showed Trump starting to gain traction in the polls months ahead…
And so what happened?
The dollar started to react, pricing in the potential impact of Trump’s policies.
The same could happen again after the upcoming debate.
So, what do you REALLY need to know?
How the market may react:
According to a recent Goldman Sachs report, there are several scenarios to keep in mind, each with its own market implications:
Basically…
- Republican sweep: Look for both Dollar strength and US equities (S&P500, and such) strength.
- Trump win with a divided government: Mostly expect the US dollar to flex its muscles.
- Harris win with a divided government: The market reaction might be more muted.
- Democratic Sweep: If Harris wins alongside a Democratic majority in Congress, then expect US equities to pull back.
For context…
Take a look at USDCNH (the US Dollar against the Chinese Yuan) and EURUSD (the Euro against the US Dollar) after Trump’s victory in 2016.
And here’s instead the same two after Biden got into office in 2020.
The contrast is striking.
Trump’s aggressive foreign policy makes the difference here!
In other words…
Tariffs!
If you traded in 2018 and 2019 you certainly remember the so called “trade war” between the US and China.
Or more precisely, between Trump and China.
So remember…
Both in a Republican sweep and in a Trump win with a divided government the immediate impact will be large appreciation in the US Dollar across the board.
While Harris with a divided government (or a whole Democratic sweep) would be much quieter and to a degree also negative for the Dollar.
What about the S&P500 and the NASDAQ?
That’s less straightforward.
Let’s see Goldmans table again:
The only two really evident scenarios are a Republican sweep (bullish) and a Democratic sweet (bearish) right?
Yes.
But why?!
Fiscal policies:
Basically…
Republicans favor lower taxes, especially corporate taxes.
And lower corporate taxes mean higher net profits for companies, which tend to boost stock prices and, by extension, the S&P500.
And the opposite is true for the Democrats.
That’s the simple way to put it.
Surely you can imagine it’s more complex than that.
But hey!
You are here to understand things, not to get confused by it, right?
So let’s keep it simple.
Be intelligently informed:
So there you have it.
A few bit of insights and guidance on what to expect (market wise) from the US elections ahead.
That way you can avoid getting trapped on the wrong side.
Which is not too bad, isn’t it?
So…
September 10.
Presidential debate.
Keep an open mind…
Don’t be politically biased 😉
Trump or Harris.
Whichever comes out ahead of that debate will start shaping sentiments and trends into the election.
