Historically, data has shown that stock markets tend to achieve gains between Election Day and the end of the year, but that period is often characterized by noticeable fluctuations immediately after the vote.
This election comes in a strong year for investment assets, adding further challenges for investors seeking to benefit from market movements amid political uncertainty.
In light of the possibility of a delay in announcing the final results of some presidential or parliamentary races, the elections are now seen as a major driver for the markets, as investors await their impact on the direction of US indices and their long-term repercussions.
What does historical data reveal?
According to a report by the American network CNBC:
- Stocks tend to rise after a presidential election, but investors should prepare for some short-term volatility, historical data shows.
- Data collected by the network indicate that the three main indicators (Dow Jones The Nasdaq and S&P 500 have seen average rises between Election Day and the end of the year in presidential election years since 1980. However, investors should not expect a continued market rally immediately after the polls close.
- The three indexes showed declines on average on the first day and the week after Election Day, but stocks typically recover most or all of those losses within a month.
- This means that investors should not expect a rapid price rise on Wednesday or in the next few days.
- This is all the more likely given that the presidential race, considered close, may not be decided by Wednesday morning. America may also need to wait for the final results of the upcoming parliamentary races to determine which party will control one or both chambers of Congress.
The report quoted Executive Director of Strategic Research at JP Morgan, Amy Ho, as saying: “The elections are now at the forefront of the scene as one of the main catalysts for financial markets,” adding: “We warn of the possibility of continued uncertainty regarding the results, as it may take several days to confirm the results.” The results of the presidential race, and it may continue for weeks for the parliamentary races.”
This election comes amid a strong year for stocks, pushing the broader market to all-time highs. With gains of nearly 20 percent, 2024 was the best first 10 months of a presidential election year since 1936, according to Bespoke Investment Group.
Scenarios
Head of the Global Markets Department at Cedra Markets, Joe Yarak, said in exclusive statements to the “Eqtisad Sky News Arabia” website:
- Wall Street’s post-election performance begins to reflect the results of the vote.
- The results are very close – according to opinion polls – and there is instability, with the possibility of a recount in some states after that.
- Regardless of who wins the presidency, there are different scenarios for how markets will perform.
- If Trump wins, Wall Street is expected to perform well thanks to his protectionist policies, which include cutting taxes and supporting the domestic economy, in addition to tough policies on immigration. He may move to reduce corporate taxes from 21 percent to 15 percent, in addition to imposing additional taxes on foreign companies and goods.
Regarding the expected performance during this week’s sessions, it is explained that if the results are delayed in light of the state of instability – with the convergence of the candidates – this may lead to a downward path for the markets until the vision becomes clear regarding the next president of the United States, especially since the results in about 6 to 7 states are not They remain close together (swing states), creating uncertainty.
He stresses that if Trump wins, the markets are likely to rise afterwards. If Kamala Harris wins and some Democrats succeed in controlling the Senate and House of Representatives, this may lead to stability in governance and positive results for Wall Street as well.
During trading on the first day of the week, one day before the presidential elections, the three major American indices recorded a decline, after a volatile session during which the Dow Jones Index lost about 400 points before reducing its losses by the end of the session to about 250 points, declining by about 0.61 percent at the level of 41,794.60 points.
Likewise, the S&P 500 index fell by about 0.28 percent, ending trading at 5,712.69 points. The Nasdaq index also fell by about 0.33 percent, ending trading at 18,179.98 points.
Positive influence
Financial markets expert, Hanan Ramses, agrees with Yarak’s estimates and believes that:
- In either case, whether Trump or Kamala Harris wins, Wall Street indices will be positively affected, but it is the percentage of the impact that will differ from Harris to Trump.
- If Kamala Harris wins, the impact could be weaker on stocks overall, but greater on certain sectors such as pharmaceuticals and medical care; Due to its interest in supporting citizens and issuing legislation to improve the level of services.
Regarding the Fed’s position, it indicates that in both cases (either candidate wins), the US Federal Reserve will resort to lowering interest rates, as it will adopt an accommodative policy that does not differ between a Harris or a Trump victory.
Harris is interested in specific sectors, such as renewable energy and medical care, which may witness movement on Wall Street if she wins, but her impact will be limited on the rest of the stocks in the American indices, according to Ramses, who adds: “But if Trump wins, he faces the issue of raising… Tariffs, will extend tax cuts for companies, promote acquisitions and mergers and support investment in fossil fuels, which may lead to improved performance of market indicators.”
She continues: “However, businessmen’s fears of customs tariffs and high protectionist policies may negatively affect the technology sector, especially electronics and semiconductor companies, given its sharp stance.”
Trump’s protectionist policies are based on a vision aimed at protecting American products, but they negatively affect the sales of those companies, which may affect their performance on Wall Street. But Ramses believes that the movement of indicators will be more flexible with Trump in office, as he, on the other hand, promises many exemptions and economic incentives.
Wobbly week
Reuters quoted Sam Stovall, chief investment strategist at CFRA Research in New York, as saying:
- “Given that it will take at least until Thursday or so to find out who won, it is unfortunate that this will be a very volatile week.”
- “Earnings are going well, the Fed is likely to cut interest rates, the only real doubt is the election, and hopefully it will be concluded sooner rather than later so investors can get back to investing.”
Federal decision
Aside from the elections, investors are awaiting the interest rate decision issued by a bank Federal Reservescheduled for release on Thursday, and new comments from Bank Chairman Jerome Powell on the central bank’s future policy moves.
Traders are factoring in 98 percent odds of interest rates being cut by a quarter of a percentage point after they were cut by half a percentage point in September, according to CME Group’s FedWatch tool.
