How might markets react to Harris or Trump win? :: InvestMacro

By ForexTime

• Markets predict Trump win; polls say race too close to call
• Trump win: further boost USD, Bitcoin, RUS2000, US stocks (oil, banks, cryptos)
• Harris win: likely positive for EUR, CNH, MXN, Chinese and European indexes, green energy stocks
• Split Congress: USD may soften; US stock indexes advance
• Contested outcome: risk assets (stocks, cryptos) falter; safe havens (gold, USD) rise?

 

The US Presidential Elections are almost here!

This high-stakes event is bound to shape financial markets worldwide not just over the coming days, but likely for years to come, given the contrasting policies offered by Kamala Harris versus Donald Trump.

But given the forward-looking nature of financial markets, traders and investors haven’t been sitting idly by, merely waiting for the final results before reacting.

In fact, various assets have already begun pricing in expectations over the past few months – long before the Nov. 5th polling day.

 

This article offers a guide through key guideposts, potential scenarios, and market opportunities in the days ahead.

What to look out for?

Remember, it takes at least 270 electoral votes to win.

After polls close on Tuesday, November 5th …

Early results are set to start trickling in around midnight (GMT) on Wednesday, November 6th.

The watching world will be paying especially close attention to the exit polls and results out of 7 battleground states starting November 6th:

1. Georgia – polls close at 00:00AM GMT
2. North Carolina – polls close at 00:30AM GMT
3. Pennsylvania – polls close at 01:00AM GMT
4. Arizona – polls close at 02:00AM GMT
5. Michigan – polls close at 02:00AM GMT
6. Wisconsin – – polls close at 02:00AM GMT
7. Nevada – polls close at 03:00AM GMT

 

When will the official winner be announced?

It could be days, if not weeks, after November 5th before we discover who will officially become the next President of the United States.

Past elections have shown the world that we could be in for an angsty waiting period:

• 2020 elections: 4 days
  After polls closed on that Tuesday, President Joe Biden wasn’t declared the winner until the following Saturday.
• 2000 elections: 5 weeks
  The US Supreme Court only awarded the presidency to George W. Bush on December 12th.

If the polls are right this time around, 2024’s neck-and-neck race may well require more time before the next President of the United States is officially declared.

 

What are markets already predicting?

Markets are currently anticipating a win for Donald Trump, although the margin has narrowed in recent days.

Note how the likes of the US dollar (as measured by the benchmark dollar index, DXY), as well as Bitcoin has risen as part of the so-called “Trump trade”.

SOURCE: Bloomberg, Polymarkets

The “Trump trade” is where investors and traders buy up assets they believe will climb higher under Trump 2.0.

 

Here’s where the “Trump trade” has been evident:

• USDInd (US dollar index) +3.17% in October
  – largest monthly gain since April 2022.
• Bitcoin: +9.65% in October
  – biggest monthly gain since May 2024
• Financials (banking stocks) and Energy (oil stocks): 2 of the 3 the best-performing sectors on the S&P 500 last month.

The share prices of JPMorgan, Exxon Mobil, and Microstrategy have also reached their respective record highs in October 2024.

Why? More on that later.

• RUS2000 index: +8.9% in Q3 2024
  The RUS2000 represents many of the smaller listed US-companies.

  Although this small-cap index fell 1.5% in October 2024, its prior gains were the envy of other major US stock indices.

  Here’s how FXTM’s US stock indexes performed respectively last quarter (Q3 2024):

  RUS2000: +8.9%

  US30: +8.2%

  US400: +6.5%

  US500: +5.5%

  NAS100: +1.9%

 

The above-listed “Trump trades” have largely tracked the bets of a Trump win from Polymarket.

 

What is Polymarket?

Polymarket is a controversial, crypto-based predictions market, which describes itself as the “world’s largest prediction market”.

Polymarket’s data is even featured by the likes of Bloomberg, Standard Chartered, and JPMorgan.

As seen in the chart above, at the time of writing on Monday, 4th November 2024:

Polymarket’s data show a 56.2% chance of a Trump win, versus a 43.9% chance of a Harris win.

 

Is a Trump win guaranteed?

Not in the slightest.

Financial markets’ bets are in stark contrast to many pollsters which show that Harris and Trump are in a tightly fought race.

In short, it’s still too close to call.

SOURCE: RealClearPolitics (RCP), Bloomberg

 

Which markets could soar if Trump wins?

And by a “Trump win”, we also include a “red sweep” scenario: Republicans (Trump’s party) also take control of both chambers of Congress (House and Senate).

Markets believe that, under Trump 2.0, his policies may reinvigorate US inflation, which prevents the Fed from cutting interest rates as quickly as previously anticipated.

Slower rate cuts, relative to other major economies, tends to strengthen that economy’s currency.

This expected US dollar strength could especially be manifested against the currencies of major US trading partners, including the EUR (euro), CNH (Chinese Yuan) and MXN (Mexican Peso), which are likely to see knee-jerk declines.

Trump has touted the US as becoming the crypto capital of the world.

That’s widely perceived to be more bullish for cryptos, in contrast to Kamala Harris’s stance which favours a regulatory framework for the industry.

• Banking, oil, and crypto-related US stocks

Trump 2.0 is expected to benefit various industries with its bias towards de-regulation (loosening rules).

This could help companies operating in various sectors, including oil (e.g. Exxon), banking (e.g. JPMorgan), and cryptocurrencies (e.g. Microstrategy – the largest publicly-listed holder of Bitcoin).

The RUS2000’s gains in Q3 reflected hopes that America’s small businesses would benefit from Trump 2.0 policies, including corporate tax cuts and more government spending.

 

 

Which markets could soar if Harris wins?

And by a “Harris win”, we also include a “blue sweep” scenario: Democrats (Harris’s party) also take control of both chambers of Congress (House and Senate) – although a “blue sweep” appears less likely in light of even the latest results from traditional pollsters.

A widely-held notion: Harris offers a continuation of the policies from her predecessor, President Biden.

A President Harris is likely to amplify the green agenda while reducing the risk of a rapid escalation in global trade tensions.

Given such an anticipated policy stance, a Harris win should trigger knee-jerk gains for the likes of:

• Chinese stock indices: CN50, CHINAH, HK50
• European stock indices: EU50, GER40, FRA40, SPN35, NETH25
• Currencies of major US trading partners: Euro (EUR), Chinese Yuan (CNH), Mexican Peso (MXN)
• Green Energy US stocks: Tesla, Rivian Auto, Lucid Group, ChargePoint Holdings, Blink Charging, First Solar, Enphase Energy, etc.

Also, the instinctive reaction to a Harris win would be a swift unwinding of the so-called “Trump trade”.

This unwinding of “Trump trades” should result in declines for the US dollar, Bitcoin, RUS2000, etc.

 

Split Congress: How might markets react?

If no single party can lay claim to the White House and the 2 chambers in Congress (House and Senate), this suggests that US laws and fiscal plans may not be massive changes over the next 4 years.

Markets tend to take delight in “business as usual” settings.

A split Congress should help push up US stock markets while the USD declines as the Fed resumes its rate cuts.

 

Contested outcome: How might markets react?

It’s tough to say, and it also depends on how long the dispute lasts.

• One could assume that risk assets, from global stock indexes to cryptos, may tumble amid the political uncertainty.
• Meanwhile, safe havens such as gold and the US dollar may rise amid heightened market fears.

However, history offers little guide.

Going back to the two contested elections (2020 and 2000) highlighted earlier in this article:

• In those 4 days in 2020 between polling day and Biden’s official win (Nov. 3 – 7, 2020):

  – S&P 500 still climbed 6%, despite the political uncertainty

  – Dollar index fell 2%

  – Gold rose 3%

• In those 5 weeks in 2000 between polling day and the Supreme Court’s decision (Nov. 7 – Dec. 12, 2000):

  – S&P 500 fell 4.3% amidst the political drama, which also occurred during the infamous bursting of the dot-com bubble.

  – Dollar index fell 1.1%

  – Gold rose 2.2%

 

Some segments of the markets are also fearing a violent aftermath from the 2024 US presidential elections.

While not our base case scenario, safe havens could soar in such an event.

 

Safer to say, market opportunities surrounding the US presidential elections only come round once every 4 years.

All in all, traders and investors must stand ready to react to any incoming volatility, to seize the chance at potential profits.

Amid the possible chaos and uncertainty, comes opportunity.

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Article by ForexTime

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