The uncertainty brought by the US election race has led investors to focus on the dollar with a rise by 1% against most global currencies. The dollar had a fair few ups and downs last night as Trump saw higher success than expected. Some surprising currencies have weakened including the Chinese yuan, Australian dollar and Norwegian crown. Share prices in Wall Street’s Dow Jones Industrial Average will start low today. Read on to learn more about how the US election will affect stock markets.
If Trump stays on
While history cannot predict the future, studying the past can give an indication of events that will unfold. During the past 14 elections half saw the president serving a second term, which drove stocks to gain on average 14.4% the following year. Where a new party taking office has previously led to a market fall of 1% the following year. This is based on more certainty with keeping the same party in office as policies are unchanged protecting businesses from new regulations and standards that could harm performance. However, this is based on fairly stable US economies, which is fair to say is not the state today. A key indicator of results in past elections is that all presidents who have avoided recession have made it to a second term. Trump has not achieved this and has been heavily criticized for his failings in handling the coronavirus dubackle. But in general, a Republican win supports stock prices as policies favour boosting earnings and profits. Where a Democrat win will see reduced equity prices as the focus is on retribution of wealth and tackling social rights.
A Biden win
Share prices will boom with a Biden victory as the Democrats achieve a massive stimulus package sparking investors to go long on commodities, short on the US dollar and short on US treasuries. If Biden continues to pull votes in the six outstanding states (Nevada, Wisconsin, Georgia, Michigan, Pennsylvania and North Carolina) a victory would lead to a higher path of inflation and a weakened US dollar. So watch this space.
What sectors are riding the high?
The healthcare sector is booming with pharmaceutical firm Astrazeneca up 4.4%. This is as with the current Biden majority, pharmacorps have the opportunity to use their donation history as leverage for possible renegotiations once he takes the White House office.
However, if neither party achieves a decisive win the huge fiscal package will be disputed. A marginal Biden victory will likely be worse for risk assets. With uncertainty across markets, investors have turned to the high growth of the tech sector. The US futures market will boom today when trading opens with Nasdaq futures likely up 3%! A Trump win could push Nasdaq even higher, although this is all speculation at this time.
So what’s happening in the UK?
Today the pound is recovering some losses as the election race continues and a Joe Biden Victory is likely. This is triggered by the larger stimulus package the Democrats will be releasing that will bring down the US dollar. The performance of the pound over the next day or two will depend on how tight the election results are, with every Trump win the pound will get weaker.
Growth has dipped in the UK this October and will continue to fall as new COVID lockdown restrictions are put in place. FTSE 100 is up 0.2% today under the muddle of the US election outcome. With unemployment rates increasing the economy will continue to struggle. The near future is fairly bleak. The UK economy is on track for a double-dip recession this winter with a slow and challenging recovery through 2021. The tighter restrictions in the UK service sector including hospitality, travel and leisure has seen a near stall this past week. With record low growth this summer, further limits on growth will have serious repercussions.
With many hours and possibly even days before an overall result there is a lot of volatility up ahead. If you’re inexperienced, stay well clear. Keep up to date with the latest stock market news with BullBear.