With every election, there is some impact on the financial markets as investors consider how the elected officials will affect economic policies. Learn more about the next US election and how the markets may be affected.
The most recent presidential election in the United States of America occurred on the 3rd of November 2020. From experience, political and economic events can cause certain instruments to rise in value and others to crash. If you are an event-driven trader who likes to take advantage of price fluctuations for some of the top financial assets in the world, this is the perfect opportunity to get involved.
There are several ways that you can trade the US election, including hedging your positions, investing in safe-haven assets, and minimizing risk with the use of order execution tools. The US dollar, US30, US500, and gold are some of our most popularly traded assets.
How to trade the US election
- Select a market: You can trade the US election by speculating on CFD markets such as indices, shares, and forex pairs, or buying shares and funds. The US 500, EUR/USD, and US stocks all tend to continue to move following the result.
- Open a trading account: You can open an account with us in just a few minutes, and there’s no pressure to add funds until you want to place a trade. You can also open a demo and practice with virtual funds beforehand.
- Be ready to react to US election news: With our in-platform news feeds from third-party providers like TipRanks and Trading Central, plus our range of trading alerts and signals, you never need to be caught out by breaking news stories.
- Log in and place your trade: Once you’ve followed the previous steps, you’re ready to log in to your account and take a position.
US Presidential Election 2024 - Overview
The Republican and Democratic presidential nominees will compete on November 5, 2024, to determine who can garner the 270 electoral college votes needed to win the presidency.
Compared to Donald Trump's 232 electoral college votes in 2020, Joe Biden received 306 votes. According to current polls, neither Biden nor Trump appears to have any credible opponents in the primaries, and unless a surprise candidature emerges, the odds are in favor of a rerun in 2020, which will not sit well with many swing voters.
The outcome of the election will likely hinge on 7 swing states, where the majority in 2020 was within 3%. These include Georgia (16 electoral college seats), Arizona (11 seats), Pennsylvania (19 seats), Wisconsin (10 seats), Nevada (6), North Carolina (16) and Michigan (15).
Control of the Senate Control of the House Timeline In November 2024, we will see 33 of the 100 Senate seats up for re-election, where 23 of those are currently held by Democrats and where 3 of those could easily be lost. The remaining 10 seats are all expected to remain firmly in Republican control. The Republicans control the House with a slim 4-seat lead with a split of 207 to 203. Unlike the Senate vote, all 435 Congressional Districts will offer seats for re-election - subsequently, 218 seats are needed to obtain a majority. ‘Super Tuesday’ on 5 March is the key date where we see some 31 primaries (across both the Republicans and Democrats side) in one day. Expect this to mark the point where market interest heats up.
The Historical Impact of Elections on the Financial Markets
It's useful to consider the market's past performance during elections to comprehend how elections affect the market. However, past performance does not guarantee future results. There's always a chance that the market will behave entirely differently than it has in the past. But you can understand prior patterns by examining past performance.
Presidential Elections
Presidential elections occur every four years, and they can shift the nation’s policies regarding foreign relations and domestic economic development. History shows that the stock market’s performance was more muted in the 12 months leading up to the election.
That effect is true for both the equities market and bond markets:
Equities
In the year leading up to a presidential election, equities gained an average of less than 6%. During non-election years, the average is more than 8%.
Bonds
Bonds tend to deliver returns of about 6.5% leading up to presidential elections, significantly less than the 7.5% returns they usually deliver.
The market usually recovers fast following the midterm elections, so-called because they occur around two years into a president's term. This isn't the case, however, with presidential elections. The first year following the election usually sees lower stock market returns while bond prices tend to rise above average.
If a new party wins the presidency, stock market returns typically increase by 5%. Returns were marginally higher, averaging 6.5%, when the party maintained the presidency, or the same president was re-elected.
Midterm Elections
To find trends influencing the market, analysts looked at market data over the previous 60 years as well as 15 midterm elections. They discovered that during the year preceding the midterm elections, the stock market, as measured by the S&P 500, underperformed in general. Its return was -1.1% on average in the 12 months leading up to the midterm elections, which was lower than the 8.1% average for the entire year.
The market performed substantially better after the midterm elections, yielding higher-than-normal returns. As of Q4, 2023, the average return for the year following a midterm election was 16.0%.
Effect of the US election on the stock market
Investors can trade on US stocks through our derivative products, such as CFDs, or buy shares of stocks. Many of the world’s largest companies by market capitalization are based in the US, including four companies that have surpassed the trillion-dollar mark. The US is renowned for its development in technology, energy, and healthcare; however, whereas some stocks may thrive in the aftermath of the election, others may crash.
Therefore, traders will be wondering: what is the election’s effect on the stock market? Let’s take examples from a few of the most prominent sectors.
Technology Stocks
Biden has frequently voiced his displeasure with the growing influence large-cap technology corporations have over market share and perceptions of the general people. He wants to specifically suggest raising taxes on internet companies, which would cause a decline in their share price and earnings. During the election, keep an eye on the share prices of Alphabet (GOOG), Amazon (AMZN), Apple (APPL), and Microsoft (MSFT).
Healthcare
The worldwide COVID-19 outbreak has made the healthcare business extremely unstable lately, and the US election may influence certain subsectors. For instance, the share prices of insurers and pharmaceutical companies may decline because of Biden's proposal for more reasonably priced healthcare. Keep an eye on leading pharmaceutical stocks like Novartis (NOVN), Merck (MRK), and Pfizer (PFE), since their share prices may increase or decrease.
Energy
Biden is committed to concentrating on renewable energy and sustainable infrastructure, while Trump is vocal about his disbelief in the dangers of climate change and the need for energy alternatives. If Biden wins, the stock prices of major oil and gas companies, such as Exxon Mobil (XOM), Chevron (CVX), and BP, may decline. For stocks in the renewable energy sector, like Tesla (TSLA) and First Solar (FSLR), this would have the opposite effect, with their share prices potentially hitting an all-time high.
Effect of US election on the US stock indices
Major US stock indices, including the USA 500, USA 30, and US Tech 100, will be impacted by the state of the stock market. The shares in these indices come from a variety of industries, including the ones listed above. In fact, the biggest technological companies account for 20% of the US market value, so Biden's tax plans might have a big effect on an index of stocks that highly weights them.
Fluctuating share prices could offset the overall risk of trading and investing in major stock indices. A shift in the presidency, for instance, has traditionally resulted in more positive than negative performance for the S&P 500 index, showing that the US stock market is flexible and can eventually profit from turbulence.
Effect of US election on the US Dollar
Historically, investors have piled onto the US dollar as a safe haven to offset the volatility of other financial markets. In this scenario, investors may once more look to the USD along with commodities like gold if there is a drop in share prices and index prices within notable sectors. Since a currency's value typically indicates how strong the economy is, the dollar may strengthen or weaken over the following months.
So, what is the effect of US elections on the dollar? Let’s look at a couple of examples of currency pairs that may strengthen due to the political situation.
EUR/USD
Politics will play an outsized role in how EUR/USD trades in 2024. Especially in the middle of the year, uncertainty over the eventual winner (not to mention control of the Senate and House of Representatives) may weigh on the US dollar and boost EUR/USD. Broadly speaking, another Trump presidency may be more bullish for the US dollar than four more years of Joe Biden, especially given Mr. Trump’s proposed 10% blanket import tax.
GBP/USD
Trade between the United States and the United Kingdom has historically been positive, with the US acting as both the largest trading partner and the consumer of the UK's goods and services. GBP/USD is now among the most traded currency pairs globally because of this. The pound's surge versus the dollar in the lead-up to the election suggests that it could be a useful asset to trade. The US political party in power can occasionally affect the value of the GBP, which tends to depreciate versus the dollar under Democratic administrations.
Asian currencies
The value of the USD/CNH currency pair reflects the steadily rising tensions between the US and China throughout the Trump administration. There have been occasions when the value of the Chinese yuan has increased, such as when the trade war began in 2019 and again after the country's Covid-19 peak had passed. The CNH's price could go up if Biden is successful in mending the rift between the two nations.
Effect of the US election on the commodity market
When it comes to raw materials like oil, gas, and precious metals, the US is one of the world's biggest suppliers and exporters of commodities. The commodity that investors most frequently utilize as a safe haven and hedging tool, particularly in the run-up to political or economic events, is gold. The price of gold has reached an all-time high in recent months, indicating that many investors would rather hedge less risky assets than trade forex or stocks in the run-up to the US election.
This also holds true for trading in crude oil, which, along with gold, is one of the most traded commodities in the US. Particularly, the prices of Brent Crude Oil and West Texas Crude Oil could fluctuate significantly in the next months, impacting also the price of oil stocks and energy ETFs.
Effect of the US election on the crypto market
Under President Joe Biden, the cryptocurrency industry has made progress, but the regulatory landscape has not been encouraging. During this time, Democrats have tended to favor a more interventionist approach, making crypto regulation a more politicized issue. But given the trend towards political differences on cryptocurrency, there's a chance for a shift in the 2024 elections.
A unified Republican government presents the most upside for the crypto market. While President Donald Trump had high-profile clashes with the industry during his first term, well-documented by Politico, a second term could be different. The former president has personally explored the sector, including launches of non-fungible tokens (NFTs).
A unified Republican government will also give major crypto legislation its best chance to pass. Clearing the 60-vote threshold in the Senate may limit the possibilities, but this would be the industry’s best opportunity since its explosion during the pandemic. On the other hand, the status quo will likely continue under a divided government where Biden remains in the White House.
Tips for trading the US election 2024
Markets are often volatile following a US election – and this year could be more unpredictable than most. Here are some tips to help you make better-informed trading decisions:
Keep up to date with the latest news
It’s important to keep up to date with the latest news to reduce your chances of being caught out by quickly developing stories. Our trading platform has a range of built-in tools to help you, including news feeds from our integrated third-party providers such as TipRanks and Trading Central, and advanced charts from TradingView.
Ensure you don't miss key moves
You can set alerts and signals from within our platform to notify you of key price points to buy or sell, so you never need to miss an opportunity because of fast-moving markets. You can change your preferences to receive these alerts by email, SMS, or push notification – and you can take a new position or alter an existing one in seconds.
React in real-time
With us, you can trade with margin on US indices, US Dollar Index, major and exotic USD currency pairs around the clock. You’ll be also able to trade or buy shares of US stocks and the largest US ETFs. Plus, with our free trading app, you’ll be able to take a position even when you’re out and about.
Trade on positive or negative price movements
When you take a position with us, you’ll be able to go long or short whenever an opportunity presents itself by leveraged over-the-counter (OTC) derivative trading. You’d go long if you expect markets to rise, and you’d go short if you expect them to fall.
US Presidential Election 2024 - Conclusion
Volatility will usually increase during presidential elections where the result is uncertain, and in this case, the competition between Donald Trump and Joe Biden proved particularly topical, with Biden emerging as the current president-elect. As we near the inauguration period, traders should closely monitor economic news and announcements as the financial markets are often impacted by breaking news.
Free Resources
Before you start trading the US election 2024, you should consider using the educational resources we offer, like CAPEX Academy or a demo trading account. CAPEX Academy has lots of free trading courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you become a better trader or make more informed investment decisions.
Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for stock investors who are looking to make a transition to leveraged trading.
Sources:
- https://www.usbank.com/investing/financial-perspectives/market-news/how-presidential-elections-affect-the-stock-market.html
- https://www.investopedia.com/terms/p/presidentialelectioncycle.asp
- https://ecfr.eu/wp-content/uploads/2023/05/Brace-yourself-How-the-2024-US-presidential-election-could-affect-Europe.pdf
- https://www.forbes.com/sites/owentedford/2024/01/24/could-the-2024-elections-be-a-turning-point-for-crypto-in-the-us/