Tuesday, 5th November 2024, will be the final day of voting in elections in the USA to choose the President and both Houses of Congress. Results may take some time to become clear as polls suggest the race is very close, but whatever the result is, based on historical precedent, it is likely to have a strong effect on capital markets. Read on to find out how the various permutations of results are likely to play out in stock and Forex markets.
Opinion Polls
With less than one week to go until polls close, the Presidential race is very tight, according to opinion polling. Using a rolling average of recent reputable polls, it is widely agreed that in the popular vote, Vice President Harris (Democrat) is just a little more than 1% ahead of former President Trump (Republican). However, the Presidency is not determined by the popular vote, but by the victor by state winning delegates to an electoral college. Looking at the polls state by state, President Trump is marginally ahead, winning a narrow victory based on a single state as the tipping point – Pennsylvania. The result will likely depend upon the winner in just seven states: Arizona, Georgia, North Carolina, Pennsylvania, Nevada, Wisconsin, and Michigan. President Trump is seen as most likely to win Arizona, Georgia, and North Carolina. Victory in these states and any one of Pennsylvania, Wisconsin, or Michigan will hand him the Presidency. Pollster 538 currently gives President Trump a 54% chance of victory, while betting markets give him a chance of about 64%.
Turning to the congressional race, the Republican Party currently controls the House of Representatives, and it looks likely to stay that way, with pollster 538 giving the Republicans a 52% chance of victory. The Senate, where Democrats currently hold control, looks almost certain to lose, with pollster 538 giving the Republicans an 89% chance of victory.
To sum up, pollsters generally forecast that the most likely outcome is full Republican control of the Presidency and both Houses of Congress. However, at least according to pollsters, Democrat wins in the Presidential and House contests remain very possible outcomes.
Historical Precedent
So, what does this mean for the markets? The first step is to look at historical precedent.
- New Presidents tend to produce gains in the stock market during the first year following their election victory. Whoever wins, there will be a new President, suggesting the stock market is likely to rise.
- When President Trump was elected in 2016, the American stock market went on a memorable bull run.
- Currencies and commodities have not shown determinable reactions to the victory of any party.
This suggests that the stock market may be due for further gains, especially if President Trump wins, and even more so if Republicans hold Congress. This is partly because one of President Trump's top selling points is strong economic and stock market growth, so he will likely pull every lever he can to achieve that at almost any cost.
However, it should be remembered that stock markets often consolidate in the year or so before an election, but this year, stocks have already made large gains. This could mean that further gains might be a stretch.
What Will a Harris Win Mean?
A key principle in trading markets is that surprises usually produce bigger price swings than more predictable outcomes. This means that as the polls suggest a Trump win, even though they are very close, the big opportunity might be if Harris and Democrats perform better and win the Presidency and maybe even the House of Representatives.
So, what will a Harris win mean?
- In Forex, a weaker US Dollar, and a stronger Euro, British Pound, and Australian Dollar.
- These Forex effects will likely be even more pronounced if the Democrats also take control of the House of Representatives.
- US stock markets may rise somewhat, but it would not be surprising if any rally is subdued or short-lived.
- Negative for Bitcoin, as Democrats are seen as much less keen on empowering cryptocurrencies.
What Will a Trump Win Mean?
- In Forex, a stronger US Dollar, and a weaker Euro, British Pound, and Australian Dollar.
- These Forex effects will likely be even more pronounced if the Republicans also keep control of the House of Representatives.
- US stock markets are likely to see a further rally.
- Positive for Bitcoin, as Trump has recently seemed to become more positive on crypto
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Extended Deadlock
As the presidential election is likely to be very close, consider what will happen if the result is unclear for some time. Appropriate precedents to look at are the aftermath of the Bush / Gore contest of 2000, where the result came down to 538 votes in Florida, with neither candidate conceding for some weeks. Another example was the 2020 election, in which Trump alleged that the election was stolen. Even though Biden's margin of victory was not particularly narrow, his victory was only partially clear for some time after the polls closed.
A dispute is likely, given the closeness of the polls and Trump's involvement and history. However, if a candidate will clearly eventually prevail, this could be an opportunity for traders, as it was last time.
Markets are likely to consolidate if the result needs to be clarified.
Conclusion
The result of a US general election can generate strong moves in markets and spark the beginnings of new trends, especially in stock markets, giving opportunities to both traders and investors alike.
Traders might look to get positioned before results begin to be released in the early hours of 6th November, although this runs the risk of being wrong.
It can also be profitable to wait until the result becomes clear and then take positions to try to exploit that, aiming at the long-term trend rather than the initial market reaction to election news.
US stock markets and the US Dollar are already in bullish trends, so if President Trump wins, this momentum will likely continue.
As a Harris victory will be seen as a small surprise by most and a big surprise by a few, the play there might be for a fast, sharp move against the US Dollar and Bitcoin.
Whoever wins, the broad stock market is likely to see some gains – this is probably the surest bet you can already be positioned for, especially if a major US stock index closes at a new record high before 5th November.
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