March 02, 2021

Take advantage of our festive 33% spread reduction on EURUSD, NASDAQ, S&P500, Dow Jones and Crude Oil with Avatrade broker. If you know what makes them tick, you can trade them.

*Valid on November 2nd– 4th, 2020

How Elections Can Impact Markets

  • Democratic win – New candidates voted in, bring elevated uncertainty, which leads to volatility.
  • Republican win – If the incumbent president is elected for a second term historically, this has elevated the stock gains prior to the election (approx. 6.5%).
  • Contested win – If the election is contested, meaning legal action is taken prior to the election result being announced and no smooth transition between terms, you can then expect mass volatility.

U.S. Elections FAQs

What are the possible outcomes of the election?

Trump, who is the incumbent president, can be re-elected for a second term, keeping a Republican White House. If Biden wins, this could see a change of both leadership and Congress going to the Democrats. Alternatively, a contested vote can take place where the loser can question either the legality or the validity of the outcome. The variety of possible outcomes naturally produces volatility.

What assets are likely to move the most from the various outcomes?

  • Under Biden Green energy stocks and bonds may jump, with oil and gas to move lower due to his energy policies. Technology and financials could fall.
  • Under Trump you might expect Oil and gas to jump and a Chinese equities sell-off
  • AUD/JPY as a proxy for risk appetite
  • Gold which is a safe haven asset
  • USD crosses
  • Stocks from the healthcare and energy sectors
  • European stocks, as money runs away from the US

What are the likely effects on the stock market of each of the 3 outcomes?

  • Historically, when a new party wins, the market gains have averaged 5% higher.
  • When the incumbent president is re-elected stock market returns usually increase by 6.5%.
  • If one of the candidate’s contests the result then this could cause wild swings in the market.