HomeThe U.S. Presidential Election and Its Impact on Financial Markets

The U.S. Presidential Election and Its Impact on Financial Markets

28 July 2020 By Mircea Vasiu

With only a few months ahead of the U.S. elections, investors already wonder what the potential  financial markets’ reaction could be. Four years ago, the election of Donald Trump had a tremendous impact on the stock market, triggering the start of a bullish cycle. 

The world changed dramatically in the last few months. Before the health crisis, the United States enjoyed high employment levels, however recently unemployment rates are high, with slim chances that the situation will improve soon.

Ahead of the U.S. Election

It is still too early, and the stock market levels may easily change until the election day, but at present, equity valuation multiples have reached levels last seen during the 1990 dot com bubble. This differs from the situation four years ago, and there is still time to see some changes.

Just like four years ago, the polls give Trump in second place. In key swing states, Biden leads comfortably. What if Biden wins?

He is no stranger to foreign politics, as for years he served as vice-president under Obama’s presidency. However, it is unlikely that the United States will change its China stance, considering the coronavirus pandemic and how the general population views China now.

However, if anything, the Biden, and the Democrats signaled higher corporate taxes. One of Trump’s promises during the previous campaign was that he would lower the corporate tax so that the big US corporations will bring back home dollars kept abroad. The move triggered a strong demand for USD, and now the reaction should be the opposite. The stock market reaction and the effect a tax rate hike will have on the USD are the major themes to consider ahead of the election.

Before jumping to the conclusion that Biden already won, given his lead in key swing states, here is a timeline of how Trump’s performed before the 2016 election. Up until the voting day, he was credited with the second chance – yet we won.

September 29th is the first of three live TV debates between the two candidates. Before then, expect volatility to rise, rumors to make the stock market gyrate sharply, and uncertainty about the outcome to dominate.

If the first half of the year belonged to the coronavirus, investors’ attention shifts towards the U.S. election in the second half.

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