Supporting Traders During the US Elections

The world’s largest economy accounts for less than 5% of the global population. Yet, as the world’s leading trader, a US election year can impact on economies and financial markets worldwide. The impact of the American political atmosphere can be seen by the fact that the fear-gauging CBOE volatility index gained 3.7% following the news of Biden’s exit from the presidential race on July 21, 2024. This was the index’s highest level in 4 months.

While the global cyber outage on Friday, July 19 did play a role here, the impact of Biden’s decision cannot be undermined. As the election dates close in, volatility is set to increase across the financial markets. Supporting your traders during and after the Trump-Harris showdown is paramount for improved revenues and customer satisfaction.

Traders Drift Away from Trump Trade

Replacing Biden, Kamala Harris has brought the Democratic Party back into the race. While Biden was 5 points down when he stepped down, Harris was leading Trump by 1.7% (45.3% vs 43.5%), as of August 5, 2024. Further, her nomination has narrowed the partisan voter turnout gap. She is leading among women and black voters. She has strengthened the position of the Democrats as strong contenders for the 2024 US elections.

However, since Harris is being perceived as more liberal than Biden, the polarisation among voters has widened. With both Trump and Harris running neck-to-neck, their contrasting policies are bound to impact market sentiment significantly. This is driving traders to reassess their portfolio allocations to prepare for a Harris win.

Impact of Different Policies on the Financial Markets

Here’s a breakdown of how Trump and Harris’ policies could impact various markets.

Stocks

In the past 40 years, the stock markets have experienced higher volatility in the first month after elections, which then slowly declines. Usually, traders rebalance their portfolios according to the policies of the newly elected President. This eventually drives the markets higher in the quarter following the election.

Small Caps

Trump favours tax cuts and deregulation. His pro-business policies may drive business growth, supporting stock prices. Tax cuts bolster the retailers’ and businesses’ purchasing power, fuelling the economy. Therefore, businesses may direct their funds toward R&D and imports. Investors might be bullish towards small caps. However, tax cuts may increase the trade deficit, further raising US debt.

Harris, on the other hand, is expected to follow Biden’s idea of raising corporate taxes. Stringent big-tech regulation may create headwinds for the sector in the short term. However, in the long term, the presence of a more predictable President (Harris) will make the sector stable and attractive to investors. Further, Harris plans on strengthening the healthcare sector, which means investors will be attracted to healthcare stocks.

Energy Stocks

Trump’s previous win turned out positive for the traditional energy sectors, such as oil and natural gas. The expectation remains the same this time. Focusing on deregulation, Trump is set to strengthen oil production and boost exports. This is diametrically opposite to Kamala Harris’ focus on clean energy. Considering her opinion on supporting domestic green energy companies, Harris may raise tariffs on EV imports.

Defence Stocks

In his previous tenure and his 2024 manifesto, Trump has pledged a strong policy against China. And this time Russia too is on his radar. This may support the defence sector. This is also why China started reinforcing its defence when Trump’s chances of winning strengthened against Biden.

His trade policies are bound to be stringent with higher tariffs in general. This may significantly weigh down on imports. This would especially impact companies dependent on Chinese or other imports, making raw materials costlier. Subdued US demand may benefit the global markets with greater availability from the supply chains.

Harris is more inclined to de-risking the US economy against Chinese dependency before taking any harsh measures. This may come as a relief for businesses and investors. Her stance on the Russia-Ukraine war is to support Ukraine and maintain healthy transatlantic relationships.

Forex

The greenback usually does not witness a dominating trend post-election. However, it does rise significantly in the 3 months before the election month. Tax cuts, a boost in the local economy and a sharp uptick in deficits, under Trump’s leadership, are likely to support the US dollar. However, the Fed’s interest rate policies will have a more significant impact on the currency compared to who is elected President. Strength in the greenback may weigh on the growth of multinational companies that dominate the S&P index as export demand could reduce. However, domestic and smaller companies are poised to support the US economy.

Precious Metals

Silver has immense industrial use in batteries and EVs. Since Kamala Harris’ policies are pro-green energy, demand for silver is poised to rise under her leadership. However, the case for gold is significantly different. A study spanning 40 years shows that the US elections weigh on the yellow metal in the first 3 months. The key reason is that the stock markets remain highly volatile, creating new opportunities for traders. After that, gold prices are largely dependent on macro-economic factors. Trump’s policy targets supporting the greenback, which is inversely correlated to gold. This means gold may become less attractive for traders in the short term, if Trump wins. The expected short-term pullback in gold prices is in line with the 40-year study.

Cryptocurrency

Trump, has chosen JD Vance as Vice President (if he wins), who is pro-cryptocurrency. Trump’s announcement about Vance buoyed the crypto markets, pushing Bitcoin up 4% and Coinbase by 11%. Trump has been encashing crypto enthusiasm for a long time. Considering the global CBDC outlook, Kamala Harris intends to create a pro-crypto policy, which has created a divide in the Democratic Party. However, her policy ideas on crypto remain unclear for now. Any update from her may add to the volatility in the crypto markets.

Being Prepared is Key

General analyst opinion is that the markets perform better with Democrats in power. However, there are numerous factors other than just who takes the Presidential seat. The key is to encourage your traders to maintain diversified portfolios and take advantage of volatility across markets as the elections draw nearer. This requires you to offer ultra-fast feeds, straight from the source, and lightning-fast execution. Post-elections, this can help your traders can get a clear picture to refine their short- and long-term trading strategies.

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