As markets continue to battle with the economic fallout from the virus pandemic, we now find ourselves on the doorstep of the US presidential elections. 2016 only seems like yesterday when the markets were gripped by the news that Donald Trump had defeated Hillary Clinton to become the 45th president of the United states of America. The unforeseen outcome caused huge bouts of selling as traders reacted to the news. Once the knee jerk reactions were out of the way then it was the more savvy investors who saw the opportunities that a business minded president could bring, capitalising on the sell-off and causing a huge rally to follow.
Fast forward four years and it’s fair to say we have seen markets rise and fall in roller coaster fashion. The Dow Jones Industrial Average seemed unstoppable, enjoying gains of as much as 70%. That rise came to end in spectacular fashion as COVID-19 began to spread across the globe, crippling economies. The huge Trump rally unwound to the extent that markets were trading within 1,000 points of where they were when he was elected.
As markets recover, the US population once again goes to the polls to elect who takes the reigns for the next four years. Will we see a bit of Deja vu on the 3rd November? If November 8th 2016 is anything to go by then clients of ETX capital may see some volatile markets and the opportunities that come with that. Are you the unprepared trader who thought nothing but a negative market reaction on a Trump outcome back in 2016? Or are you the forward-thinking trader who welcomed the sell-off as you knew there was only one way this will go. It’s the determined trader who is prepared and ready to act before the market fully discounts the outcome. It’s the trader who has a full understanding of events leading up to the event who has the best chances. Market participants are now beginning the process of formulating their trading plans by being up to date with real time events and working on possible outcomes.
Markets discounts information as it becomes available. As we lead up to the big day there will be a more favoured outcome, but we know from previous events that the favourite doesn’t often win. To gauge what is expected on the big night we look to who currently is expected to win, a good indicator is looking at probability. Popular odds comparison site odds checker state “Joe Biden has a 54.5% chance of winning the election, whereas Donald Trump's odds indicate he has a 47.6% chance of winning” as of the 21st September. So from that we can see once again Trump finds himself not the favourite amongst mainstream bookmakers. So the markets expect Biden to win? Not exactly, although they have Biden as the probable winner it’s been the volume of bets which have been significant in previous events. According to odds checker “80% of money has been wagered on Trump” and there was a similar theme back in the 2016 Election where Trump once again attracted the most money and even in the Brexit referendum where leave was more backed. Markets at this stage still see the incumbent Trump to remain as President.
What can affect the outcome and cause markets to react? As with most political events we look towards candidates exposing themselves during live debates and snapshots of voting intentions through major polls. The first presidential debate takes place on the 29th September, expect volatility in major markets as Trump and Biden exchange verbal blows on live TV. A key event to watch out for is the CNN snap poll result which gives a good indication of who the viewing public thought came off better. A strong performance is likely to bolster their chance of winning. There will be a further 2 presidential debates, one on the 15th October and the final one on the 22nd. Throughout the period we will see polls from major TV networks and publications, keep an eye on these as they will reveal information on key swing states (12 swing states in total, Arizona (AZ), Florida (FL), Georgia, Iowa, Maine (MN), Michigan, Minnesota, Nevada, New Hampshire, North Carolina, Pennsylvania and Wisconsin). Major polls which the market will play close attention to are NBC/Wall Street Journal, ABC/Post, Monmouth, CNN/SPSS, CBS/YouGov and New York Times/Siena.
Markets To Watch? With all major US events traders will not be looking much further than the Major indices, Dollar and Gold markets. These assets are primed to move over the debate, especially if there is a clear winner or something contentious is said. All eyes will be on the major US news sites with their snap polls. Indices have seen a small downturn recently but as with previous small sell offs the buyers have leapt back into action. There is still plenty of time for voters to make up their minds but it’s clear that a change from President Trump may upset the bullish momentum we had prior to the pandemic. Before the next president of the US becomes fact, markets are likely to see volatile and whipsaw conditions as traders seek out value.
Keep up to date with our blog and webinar series as we cover everything you need to know about the US presidential election 2020. Expect market updates, Technical analysis and a complete rundown on the night itself as we show how Florida is a must win state for the next president of the United States.